Reporting entity

Wellington City Council is a territorial local authority governed by the Local Government Act 2002.

The primary objective of the Council and Group is to provide goods or services for community or social benefits rather than making a financial return. Accordingly, for the purposes of financial reporting, Wellington City Council is a public benefit entity.

The financial statements include the Council and Group. A Group structural diagram is included in Note 38. The Council includes the results and operations of Wellington City Council as a separate legal entity, the Council’s interests in the joint ventures as disclosed in Note 39 and both the Wellington Waterfront and Wellington Venues projects. The Group includes the Council, the subsidiaries disclosed in Note 40, and the Council’s interest in the associates disclosed in Note 41. All entities included within the Group are domiciled in Wellington, New Zealand.

The financial statements of the Council and Group are for the year ended 30 June 2013 and were authorised for issue by Council on 28 August 2013.

Basis of preparation

Statement of compliance

The financial statements have been prepared in accordance with the requirements of the Local Government Act 2002, which includes the requirement to comply with New Zealand Generally Accepted Accounting Practice (NZ GAAP).

The financial statements comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) and other applicable Financial Reporting Standards, as appropriate for public benefit entities.

Measurement base

The measurement basis applied is historical cost, modified by the revaluation of certain assets and liabilities as identified in this summary of significant accounting policies. The accrual basis of accounting has been used unless otherwise stated.

For the assets and liabilities recorded at fair value, fair value is defined as the amount for which an item could be exchanged, or a liability settled, between knowledgeable and willing parties in an arm’s-length transaction. For investment property, non-current assets classified as held for sale and items of property, plant and equipment which are revalued, the fair value is determined by reference to market value. The market value of a property is the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction.

Amounts expected to be recovered or settled more than one year after the end of the reporting period are recognised at their present value. The present value of the estimated future cash flows is calculated using applicable inflation factors and a discount rate. The inflation rates used are obtained from the latest relevant BERL forecasts and the discount rate is the Council’s forecast long-term cost of borrowing.

The financial statements are presented in New Zealand dollars, rounded to the nearest thousand ($000), unless otherwise stated.

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.

Change of accounting policies

There have been no changes in accounting policies during the financial period.

Standards, amendments and interpretations issued but not yet effective and not early adopted

Standards, amendments and interpretations issued but not yet effective that have not been early adopted and which are relevant to the Council include:

NZ IFRS 9 Financial Instruments and NZ IFRS 9 Financial Instruments (2010) – The Council has previously made the decision not to early adopt NZ IFRS 9 Financial Instruments to replace NZ IAS 39 Financial Instruments: Recognition and Measurement, as not all phases of NZ IFRS 9 have been completed and authorised for use. The effective date for adoption by the Council is 1 July 2015.

The suite of approved accounting standards currently applicable for Public Benefit Entities (PBE) is temporarily frozen pending the development of a new set of New Zealand public sector accounting standards (PAS) based on the International Public Sector Accounting Standards (IPSAS). The expected transition date to the new standards is 1 July 2014.

An interim ‘new’ set of standards (NZ IFRS PBE) with effect for periods beginning on or after 1 December 2012 will replace the ‘old’ NZ IFRS with PBE paragraphs. There are no differences between the ‘old’ and ‘new’ sets of standards.

No disclosures have been made in regard to new or amended NZ IFRS that are presently only applicable to ‘for profit’ entities.

Judgements and estimations

The preparation of financial statements using NZ IFRS requires the use of judgements, estimates and assumptions. Where material, information on the main assumptions is provided in the relevant accounting policy or in the relevant note.

The estimates and assumptions are based on historical experience as well as other factors that are believed to be reasonable under the circumstances. Subsequent actual results may differ from these estimates.

The estimates and assumptions are reviewed on an ongoing basis and adjustments are made where necessary.

Judgements that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in the relevant notes. Significant judgements and estimations include landfill post-closure costs, asset revaluations, impairments, certain fair value calculations and provisions.

Basis of consolidation

The Group includes joint ventures, subsidiaries and associates. A Group structure diagram is included in Note 38.

Joint ventures

Joint ventures are contractual arrangements with other parties to undertake a jointly controlled operation. The Council has a liability in respect of its share of joint ventures’ deficits and liabilities, and shares in any surpluses and assets. The Council’s proportionate interest in the assets, liabilities, revenue and expenditure is included in the financial statements of the Council and Group on a line-by-line basis.

Subsidiaries

Subsidiaries are entities that are controlled by the Council. In the Council financial statements, the investment in subsidiaries are carried at cost. In the Group financial statements, subsidiaries are accounted for using the purchase method where assets, liabilities, revenue and expenditure is added in on a line-by-line basis.

All significant transactions between Group entities, other than rates, are eliminated on consolidation. Rates are charged on an arm’s-length basis and are not eliminated to ensure that reported costs and revenues are consistent with the Council’s Annual Plan.

Associates

Associates are entities where the Council has significant influence, but not control, over their operating and financial policies. In the Council financial statements, the investments in associates are carried at cost. In the Group financial statements, the Council’s share of the assets, liabilities, revenue and expenditure of associates is included on an equity accounting basis as a single line.

Income

Income comprises revenue, gains and finance income and is measured at the fair value of consideration received or receivable. Specific accounting policies for major categories of income are outlined below:

Rates

Rates are set annually by resolution from the Council and relate to a particular financial year. All ratepayers are invoiced within the financial year for which the rates have been set. Rates revenue is recognised proportionately throughout the year.

Operating activities

Grants, subsidies and reimbursements

Grants, subsidies and reimbursements are initially recognised at their fair value where there is reasonable assurance that the payment will be received and all attaching conditions will be complied with. Grants and subsidies received in relation to the provision of services are recognised on a percentage of completion basis. Reimbursements (eg NZ Transport Agency roading claim payments) are recognised upon entitlement, which is when conditions pertaining to eligible expenditure have been fulfilled.

Development contributions

Development contributions are recognised as income when the Council provides, or is able to provide, the service for which the contribution was charged. Until such time as the Council provides, or is able to provide, the service, development contributions are recognised as liabilities.

Fines and penalties

Revenue from fines and penalties (eg traffic and parking infringements, library overdue book fines, rates penalties) is recognised when infringement notices are issued or when the fines/penalties are otherwise imposed.

Rendering of services

Revenue from the rendering of services (eg building consent fees) is recognised by reference to the stage of completion of the transaction, based on the actual service provided as a percentage of the total services to be provided. Under this method, revenue is recognised in the accounting periods in which the services are provided.

Sale of goods

Sale of goods is recognised when products are sold to the customer and all risks and rewards of ownership have transferred to the customer.

Investment revenues

Dividends

Dividends are recognised when the shareholders’ rights to receive payment have been established.

Investment property lease rentals

Lease rentals (net of any incentives given) are recognised on a straight line basis over the term of the lease.

Other income

Specific accounting policies for major categories of other income are outlined below:

Donated, subsidised or vested assets

Where a physical asset is acquired for nil or nominal consideration, the fair value of the asset received is recognised as income when the control of the asset is transferred to the Council.

Gains

Gains include additional earnings on the disposal of property, plant and equipment and movements in the fair value of financial assets and liabilities.

Finance income

Interest

Interest income is recognised using the effective interest rate method.

Donated services

The Council benefits from the voluntary service of many Wellingtonians in the delivery of its activities and services (e.g. beach cleaning and Otari-Wilton’s Bush guiding and planting). Due to the difficulty in determining the precise value of these donated services with sufficient reliability, donated services are not recognised in these financial statements.

Expenses

Specific accounting policies for major categories of expenditure are outlined below:

Operating activities

Grants and sponsorships

Expenditure is classified as a grant or sponsorship if it results in a transfer of resources (eg cash or physical assets) to another entity in return for compliance with certain conditions relating to the operating activities of that entity. It includes any expenditure arising from a funding arrangement with another entity that has been entered into to achieve the objectives of the Council. Grants and sponsorships are distinct from donations which are discretionary or charitable gifts. Where grants and sponsorships are discretionary until payment, the expense is recognised when the payment is made. Otherwise, the expense is recognised when the specified criteria have been fulfilled.

Finance expense

Interest

Interest expense is recognised using the effective interest rate method. All borrowing costs are expensed in the period in which they are incurred.

Depreciation and amortisation

Depreciation of property, plant and equipment and amortisation of intangible assets are charged on a straight-line basis over the estimated useful life of the associated assets.

Taxation

Income tax on the surplus or deficit for the year comprises current and deferred tax.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the end of the reporting period, plus any adjustment to tax payable in respect of previous periods.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the assets and liabilities, and the unused tax losses using tax rates enacted or substantively enacted at the end of the reporting period. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which they can be utilised.

Goods and Services Tax (GST)

All items in the financial statements are exclusive of GST, with the exception of receivables and payables, which are stated as GST inclusive. Where GST is not recoverable as an input tax, it is recognised as part of the related asset or expense.

Financial instruments

Financial instruments include financial assets (loans and receivables and financial assets at fair value through other comprehensive income), financial liabilities (payables and borrowings) and derivative financial instruments. Financial instruments are initially recognised on trade-date at their fair value plus transaction costs. Subsequent measurement of financial instruments depends on the classification determined by the Council. Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred and the Group has transferred substantially all of the risks and rewards of ownership.

Financial instruments are classified into the categories outlined below based on the purpose for which they were acquired. The classification is determined at initial recognition and re-evaluated at the end of each reporting period.

Financial assets

Financial assets are classified as loans and receivables or financial assets at fair value through other comprehensive income.

Loans and receivables comprise cash and cash equivalents, trade and other receivables and loans and deposits.

Cash and cash equivalents comprise cash balances and call deposits with maturity dates of less than three months.

Trade and other receivables have fixed or determinable payments. They arise when the Group provides money, goods or services directly to a debtor, and has no intention of trading the receivable.

Loans and deposits include loans to other entities (including subsidiaries and associates), and bank deposits with maturity dates of more than three months.

Financial assets in this category are recognised initially at fair value plus transaction costs and subsequently measured at amortised cost using the effective interest rate method. Fair value is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date for assets of a similar maturity and credit risk. Trade and other receivables due in less than 12 months are recognised at their nominal value. A provision for impairment is recognised when there is objective evidence that the asset is impaired. As there are statutory remedies to recover unpaid rates, penalties and water meter charges, no provision has been made for impairment in respect of these receivables.

Financial assets at fair value through other comprehensive income relate to equity investments that are held by the Council for long-term strategic purposes and therefore are not intended to be sold. Financial assets at fair value through other comprehensive income are initially recorded at fair value plus transaction costs. They are subsequently measured at fair value and changes, other than impairment losses, are recognised directly in a reserve within equity. On disposal, the cumulative fair value gain or loss previously recognised directly in other comprehensive income is recognised within surplus or deficit.

Financial liabilities

Financial liabilities comprise trade and other payables and borrowings. Financial liabilities with duration of more than 12 months are recognised initially at fair value plus transaction costs and subsequently measured at amortised cost using the effective interest rate method. Amortisation is recognised within surplus or deficit. Financial liabilities with duration of less than 12 months are recognised at their nominal value.

On disposal any gains or losses are recognised within surplus or deficit.

Derivatives

Derivative financial instruments include interest rate swaps used to hedge exposure to interest rate risk on borrowings. Derivatives are initially recognised at fair value, based on quoted market prices, and subsequently remeasured to fair value at the end of each reporting period. Fair value is determined by reference to quoted prices for similar instruments in active markets. Derivatives that do not qualify for hedge accounting are classified as non-hedged and fair value gains or losses are recognised within surplus or deficit.

Recognition of fair value gains or losses on derivatives that qualify for hedge accounting depends on the nature of the item being hedged. Where a derivative is used to hedge variability of cash flows (cash flow hedge), the effective part of any gain or loss is recognised within other comprehensive income while the ineffective part is recognised within surplus or deficit. Gains or losses recognised in other comprehensive income transfer to surplus or deficit in the same periods as when the hedged item affects the surplus or deficit. Where a derivative is used to hedge variability in the fair value of the Council’s fixed rate borrowings (fair value hedge), the gain or loss is recognised within surplus or deficit.

As per the International Swap Dealers’ Association (ISDA) master agreements, all swap payments or receipts are settled net.

Inventories

Inventories consumed in the provision of services (such as botanical supplies) are measured at the lower of cost and current replacement cost.

Inventories held for resale (such as rubbish bags), are recorded at the lower of cost (determined on a first-in, first-out basis) and net realisable value. This valuation includes allowances for slow-moving and obsolete stock. Net realisable value is the estimated selling price in the ordinary course of business.

Inventories held for distribution at no or nominal cost, are recorded at the lower of cost and current replacement cost.

Investment properties

Investment properties are properties which are held primarily to earn rental income or for capital growth or both. These include the Council’s ground leases, land and buildings and the Wellington Waterfront Project’s investment properties.

Investment properties exclude those properties held for strategic purposes or to provide a social service. This includes properties which generate cash inflows as the rental revenue is incidental to the purpose for holding the property. Such properties include the Council’s social housing assets, which are held within operational assets in property, plant and equipment. Borrowing costs incurred during the construction of investment property are not capitalised.

Investment properties are measured initially at cost and subsequently measured at fair value, determined annually by an independent registered valuer. Any gain or loss arising is recognised within surplus or deficit. Investment properties are not depreciated.

Non-current assets classified as held for sale

Non-current assets held for sale are separately classified as their carrying amount will be recovered through a sale transaction rather than through continuing use. A non-current asset is classified as held for sale where:

the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets;

a plan to sell the asset is in place and an active programme to locate a buyer has been initiated;

the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value;

the sale is expected to occur within one year or beyond one year where a delay has occurred which is caused by events beyond the Group’s control and there is sufficient evidence the Group remains committed to sell the asset; and

​actions required to complete the sale indicate it is unlikely that significant changes to the plan will be made or the plan will be withdrawn.

A non-current asset classified as held for sale is recognised at the lower of its carrying amount or fair value less costs to sell. Impairment losses on initial classification are included within surplus or deficit.

Property, plant and equipment

Operational assets include land, the landfill post-closure asset, buildings, the Civic Centre complex, the library collection, and plant and equipment.

Restricted assets include art and cultural assets, zoo animals, restricted buildings, parks and reserves and the Town Belt. These assets provide a benefit or service to the community and in most cases cannot be disposed of because of legal or other restrictions.

Infrastructure assets include the roading network, water, waste and drainage reticulation networks and infrastructure land (including land under roads). Each asset type includes all items that are required for the network to function.

Vested assets are those assets where ownership and control is transferred to the Council from a third party (eg infrastructure assets constructed by developers and transferred to the Council on completion of a subdivision). Vested assets are recognised within their respective asset classes as above.

Recognition

Expenditure is capitalised as property, plant and equipment when it creates a new asset or increases the economic benefits of an existing asset. Costs that do not meet the criteria for capitalisation are expensed.

Measurement

Property, plant and equipment is recognised initially at cost, unless acquired for nil or nominal cost (eg vested assets), in which case the asset is recognised at fair value at the date of transfer. The initial cost of property, plant and equipment includes the purchase consideration (or the fair value in the case of vested assets), and those costs that are directly attributable to bringing the asset into the location and condition necessary for its intended purpose. Subsequent expenditure that extends or expands the asset’s service potential is capitalised.

Borrowing costs incurred during the construction of property, plant and equipment are not capitalised.

After initial recognition, certain classes of property, plant and equipment are revalued to fair value. Where there is no active market for an asset, fair value is determined by optimised depreciated replacement cost.

Specific measurement policies for categories of property, plant and equipment are shown below:

Operational assets

Plant and equipment and the Civic Centre complex are measured at historical cost and not revalued.

Library collections are valued at depreciated replacement cost on a three-year cycle by the Council’s library staff in accordance with guidelines outlined in Valuation Guidance for Cultural and Heritage Assets, published by the Treasury Accounting Team, November 2002.

Land and buildings are valued at fair value on a three-year cycle by independent registered valuers.

Restricted assets

Art and cultural assets (artworks, sculptures and statues) are valued at historical cost. Zoo animals are stated at estimated replacement cost. All other restricted assets (buildings, parks and reserves and the Town Belt) were valued at fair value as at 30 June 2005 by independent registered valuers. The Council has elected to use the fair value of other restricted assets at 30 June 2005 as the deemed cost of the assets. These assets are no longer revalued. Subsequent additions have been recorded at cost.

Infrastructure assets

Infrastructure assets (roading network, water, waste and drainage reticulation assets) are valued at optimised depreciated replacement cost on a three-year cycle by independent registered valuers. Infrastructure valuations are based on current quotes from actual suppliers. As such, they include ancillary costs such as breaking through seal, traffic control and rehabilitation. Between valuations, expenditure on asset improvements is capitalised at cost.

Infrastructure land (excluding land under roads) is valued at fair value on a three-year cycle.

Land under roads, which represents the corridor of land directly under and adjacent to the Council’s roading network, was valued as at 30 June 2005 at the average value of surrounding adjacent land discounted by 50% to reflect its restricted nature. The Council elected to use the fair value of land under roads at 30 June 2005 as the deemed cost of the asset. Land under roads is no longer revalued. Subsequent additions have been recorded at cost.

The carrying values of revalued property, plant and equipment are reviewed at the end of each reporting period to ensure that those values are not materially different to fair value.

Revaluations

The result of any revaluation of the Council’s property, plant and equipment is recognised within other comprehensive income and taken to the asset revaluation reserve. Where this results in a debit balance in the reserve for a class of property, plant and equipment, the balance is included in the surplus or deficit. Any subsequent increase on revaluation that offsets a previous decrease in value recognised within surplus or deficit will be recognised firstly, within surplus or deficit up to the amount previously expensed, with any remaining increase recognised within other comprehensive income and in the revaluation reserve for that class of property, plant and equipment.

Accumulated depreciation at the revaluation date is eliminated so that the carrying amount after revaluation equals the revalued amount.

While assumptions are used in all revaluations, the most significant of these are in infrastructure. For example where stormwater, wastewater and water supply pipes are underground, the physical deterioration and condition of assets are not visible and must therefore be estimated. Any revaluation risk is minimised by performing a combination of physical inspections and condition modelling assessments.

Further information in respect of the most recent valuations for each class is provided in Note 25: Revaluation reserves.

Impairment

The carrying amounts of property, plant and equipment are reviewed at least annually to determine if there is any indication of impairment. Where an asset’s, or class of assets’, recoverable amount is less than its carrying amount it will be reported at its recoverable amount and an impairment loss will be recognised. The recoverable amount is the higher of an item’s fair value less costs to sell and value in use. Losses resulting from impairment are reported within surplus or deficit, unless the asset is carried at a revalued amount in which case any impairment loss is treated as a revaluation decrease and recorded within other comprehensive income.

Disposal

Gains and losses arising from the disposal of property, plant and equipment are recognised within surplus or deficit in the period in which the transaction occurs. Any balance attributable to the disposed asset in the asset revaluation reserve is transferred to retained earnings.

Work in progress

The cost of projects within work in progress is transferred to the relevant asset class when the project is completed and then depreciated.

Depreciation

Depreciation is provided on all property, plant and equipment, with certain exceptions. The exceptions are land, restricted assets other than buildings, and assets under construction (work in progress). Depreciation is calculated on a straight-line basis, to allocate the cost or value of the asset (less any assessed residual value) over its estimated useful life. The estimated useful lives and depreciation rate ranges of the major classes of property, plant and equipment are as follows:

Land

unlimited

not depreciated

Buildings

1 to 100 years

1% to 100%

Civic Centre complex

10 to 100 years

1% to 10%

Plant and equipment

3 to 100 years

1% to 33.3%

Library collections

3 to 11 years

9.1% to 33.3%

Restricted assets (excluding buildings)

unlimited

not depreciated

Infrastructure assets:

Land (including land under roads)

unlimited

not depreciated

Roading:

Formation/earthworks

unlimited

not depreciated

Pavement

13 to 40 years

2.5% to 7.7%

Traffic islands

80 years

1.25%

Bridges and tunnels

3 to 150 years

0.67% to 33.3%

Drainage

15 to 120 years

0.83% to 6.67%

Retaining walls

30 to 100 years

1% to 3.33%

Pedestrian walkway

10 to 50 years

2% to 10%

Pedestrian furniture

8 to 25 years

4% to 12.5%

Barriers

10 to 110 years

0.91% to 10%

Lighting

10 to 50 years

2% to 10%

Cycleway network

25 to 45 years

2.2% to 4%

Parking equipment

8 to 10 years

10% to 12.5%

Passenger transport facilities

25 years

4%

Traffic infrastructure

3 to 30 years

3.33% to 33.3%

Drainage, waste and water:

Pipework

40 to 110 years

0.91% to 2.5%

Fittings

7 to 100 years

1% to 14.29%

Water pump stations

10 to 100 years

1% to 10%

Water reservoirs

40 to 100 years

1% to 2.5%

Equipment

25 years

4%

Sewer pump stations

20 to 80 years

1.25% to 5%

Tunnels

150 years

0.67%

Treatment plants

3 to 100 years

1% to 33.3%

The landfill post-closure asset is depreciated over the life of the landfill based on the capacity of the landfill.

Variation in the range of lives for infrastructural assets is due to these assets being managed and depreciated by individual component rather than as a whole asset.

Intangible assets

Intangible assets predominantly comprise computer software and carbon credits. They are recorded at cost less any subsequent amortisation and impairment losses.

Computer software has a finite economic life and amortisation is charged to surplus or deficit on a straight-line basis over the estimated useful life of the asset. Typically, the estimated useful lives and depreciation rate range of these assets are as follows:

Computer software

1 to 7 years

14.29% to 100%

Carbon credits comprise either allocations of emission allowances granted by the Government related to forestry assets or units purchased in the market to cover liabilities associated with landfill operations. Carbon credits are recognised at cost at the date of allocation or purchase.

Gains and losses arising from disposal of intangible assets are recognised within surplus or deficit in the period in which the transaction occurs. Intangible assets are reviewed at least annually to determine if there is any indication of impairment. Where an intangible asset’s recoverable amount is less than its carrying amount, it will be reported at its recoverable amount and an impairment loss will be recognised. Losses resulting from impairment are reported within surplus or deficit.

Research and Development

Research costs are expensed as incurred. Development expenditure on individual projects is capitalised and recognised as an asset when it meets the definition and criteria for capitalisation as an asset and it is probable that the Council will receive future economic benefits from the asset. Assets which have finite lives are stated at cost less accumulated amortisation and are amortised on a straight-line basis over their useful lives.

Leases

Operating leases as lessee

Leases where the lessor retains substantially all the risks and rewards of ownership of the leased items are classified as operating leases. Payments made under operating leases are recognised within surplus or deficit on a straight-line basis over the term of the lease. Lease incentives received are recognised within surplus or deficit over the term of the lease as they form an integral part of the total lease payment.

Operating leases as lessor

The Group leases investment properties and a portion of land and buildings. Rental income is recognised on a straight-line basis over the lease term.

Finance leases

Finance leases transfer to the Group (as lessee) substantially all the risks and rewards of ownership of the leased asset. Initial recognition of a finance lease results in an asset and liability being recognised at amounts equal to the lower of the fair value of the leased property or the present value of the minimum lease payments.

The finance charge is released to surplus or deficit over the lease period and the capitalised values are amortised over the shorter of the lease term and the useful life of the leased item.

Employee benefit liabilities

A provision for employee benefit liabilities (holiday leave, long service leave and retirement gratuities) is recognised as a liability when benefits are earned but not paid.

Holiday leave

Holiday leave includes: annual leave, long service leave (qualified for), statutory time off in lieu and ordinary time off in lieu. Annual leave is calculated on an actual entitlement basis in accordance with section 21(2) of the Holidays Act 2003.

Retirement gratuities

Retirement gratuities are calculated on an actuarial basis based on the likely future entitlements accruing to employees, after taking into account years of service, years to entitlement, the likelihood that employees will reach the point of entitlement, and other contractual entitlements information.

Other contractual entitlements

Other contractual entitlements include termination benefits, which are recognised within surplus or deficit only when there is a demonstrable commitment to either terminate employment prior to normal retirement date or to provide such benefits as a result of an offer to encourage voluntary redundancy. Termination benefits settled within 12 months are reported at the amount expected to be paid, otherwise they are reported as the present value of the estimated future cash outflows.

Provisions

Provisions are recognised for future liabilities of uncertain timing or amount when there is a present obligation as a result of a past event, it is probable that expenditure will be required to settle the obligation and a reliable estimate of the obligation can be made. Provisions are measured at the expenditure expected to be required to settle the obligation. Liabilities and provisions to be settled beyond 12 months are recorded at their present value.

Landfill post-closure costs

The Council, as operator of the Southern Landfill, has a legal obligation to apply for resource consents when the landfill or landfill stages reach the end of their operating life and are to be closed. These resource consents will set out the closure requirements and the requirements for ongoing maintenance and monitoring services at the landfill site after closure. A provision for post-closure costs is recognised as a liability when the obligation for post-closure arises, which is when each stage of the landfill is commissioned and refuse begins to accumulate.

The provision is measured based on the present value of future cash flows expected to be incurred, taking into account future events including known changes to legal requirements and known improvements in technology. The provision includes all costs associated with landfill post-closure including final cover application and vegetation; incremental drainage control features; completing facilities for leachate collection and monitoring; completing facilities for water quality monitoring; completing facilities for monitoring and recovery of gas.

Amounts provided for landfill post-closure are capitalised to the landfill asset. The capitalised landfill asset is depreciated over the life of the landfill based on the capacity used.

The Council has a 21.5% joint venture interest in the Spicer Valley landfill. The Council’s provision for landfill post-closure costs includes the Council’s proportionate share of the Spicer Valley landfill provision for post-closure costs.

ACC partnership programme

The Council is an Accredited Employer under the ACC Partnership Programme. As such the Council accepts the management and financial responsibility of our employee work-related injuries. From 1 April 2009 the Council changed its agreement with ACC from Full Self Cover (FSC) to Partnership Discount Plan (PDP). Under the PDP option, the Council is responsible for managing work related injury claims for a two-year period only and transfer ongoing claims to ACC at the end of the two-year claim management period with no further liability. Under the ACC Partnership Programme the Council is effectively providing accident insurance to employees and this is accounted for as an insurance contract. The value of this liability represents the expected future payments in relation to work-related injuries occurring up to the end of the reporting period for which the Council has responsibility under the terms of the Partnership Programme.

Financial guarantee contracts

A financial guarantee contract is a contract that requires the Council to make specified payments to reimburse the contract holder for a loss it incurs because a specified debtor fails to make payment when due.

Financial guarantee contracts are initially recognised at fair value. The Council measures the fair value of a financial guarantee by determining the probability of the guarantee being called by the holder. The probability factor is then applied to the principal and the outcome discounted to present value.

Financial guarantees are subsequently measured at the higher of the Council’s best estimate of the obligation or the amount initially recognised less any amortisation.

Equity

Equity is the community’s interest in the Council and Group and is measured as the difference between total assets and total liabilities. Equity is disaggregated and classified into a number of components to enable clearer identification of the specified uses of equity within the Council and the Group.

The components of equity are accumulated funds and retained earnings, revaluation reserves, a hedging reserve, a fair value through other comprehensive income reserve and restricted funds (special funds, reserve funds, trusts and bequests).

Restricted funds are those reserves that are subject to specific conditions of use, whether under statute or accepted as binding by the Council, and that may not be revised without reference to the Courts or third parties. Transfers from these reserves may be made only for specified purposes or when certain specified conditions are met.

Contingent assets and liabilities

Contingent liabilities and contingent assets are disclosed in the Notes forming part of the Financial Statements at the point at which the contingency is evident. Contingent liabilities are disclosed if the possibility they will crystallise is not remote. Contingent assets are disclosed if it is probable the benefits will be realised.

Statement of cash flows

Cash and cash equivalents for the purposes of the cash flow statement comprises bank balances, cash on hand and short term deposits with a maturity of three months or less. The statement of cash flows has been prepared using the direct approach subject to the netting of certain cash flows. Cash flows in respect of investments and borrowings that have been rolled-over under arranged finance facilities have been netted in order to provide more meaningful disclosures.

Operating activities include cash received from all non-financial income sources of the Council and the Group and record the cash payments made for the supply of goods and services. Investing activities relate to the acquisition and disposal of assets and investment income. Financing activities relate to activities that change the equity and debt capital structure of the Council and Group and financing costs.

Related parties

Related parties arise where one entity has the ability to affect the financial and operating policies of another through the presence of control or significant influence. Related parties include members of the Group and key management personnel, including the Mayor and Councillors, the Chief Executive and all members of the Executive Leadership Team.

The Mayor and Councillors are considered directors as they occupy the position of a member of the governing body of the Council reporting entity. Directors’ remuneration comprises any money, consideration or benefit received or receivable or otherwise made available, directly or indirectly, to a director during the reporting period. The disclosures for the Group include the remuneration of the Mayor and those Councillors in their role as trustees or directors of entities within the Group. Directors’ remuneration does not include reimbursement of authorised work expenses or the provision of work-related equipment such as cellphones and laptops.

Budget figures

The Annual Plan budget figures included in these financial statements are for the Council as a separate entity. The Annual Plan figures do not include budget information relating to subsidiaries or associates. These figures are those approved by the Council at the beginning of each financial year following a period of consultation with the public as part of the Annual Plan process. These figures do not include any additional expenditure subsequently approved by the Council outside the Annual Plan process. For completeness, any additional expenditure approved by the Council is explained in Notes 32 to 35. The Annual Plan figures have been prepared in accordance with GAAP and are consistent with the accounting policies adopted by the Council for the preparation of these financial statements.

Cost allocation

The Council has derived the cost of service for each significant activity (as reported within the Statements of Service Performance). Direct costs are expensed directly to the activity. Indirect costs relate to the overall costs of running the organisation and include staff time, office space and information technology costs. These indirect costs are allocated as overheads across all activities.

Comparatives

To ensure consistency with the current year, certain comparative information has been reclassified where appropriate. This has occurred:

where classifications have changed between periods;

where the Council has made additional disclosure in the current year, and where a greater degree of disaggregation of prior year amounts and balances is therefore required; and

​where there has been a change of accounting policy. (There has been no change in the 2012/13 year)

The total amount of rates charged on Council-owned properties that have not been eliminated from revenue and expenditure is $10.419m (2012: $10.125m). For the Group rates of $10.455m (2012: $10.161m) have not been eliminated.

Rates remissions

Revenue from rates and levies is shown net of rates remissions. The Council’s Rates Remission and Postponement Policies provide for general rates to be partially remitted for rural open space; land used principally for games or sport and in special circumstances (where the rating policy is deemed to unfairly disadvantage an individual ratepayer). A remission of the Downtown levy targeted rate may also be granted to provide rates relief for downtown commercial property temporarily not fit for the purpose due to the property undergoing development and therefore not receiving the benefits derived by contributing to the Downtown levy targeted rate. The Council committed itself at the start of the year to certain remissions, which for the reporting period ended 30 June 2013 totalled $0.260m (2012: $0.224m).

Council

Group

2013 $000

2012 $000

2013 $000

2012 ​$000

Total revenue from rates

237,648

230,488

237,648

230,488

less Council policy remissions

Rural open space

129

99

129

99

Land used principally for games or sport

80

78

80

78

Downtown levy

51

47

51

47

Total remissions

260

224

260

224

Total revenue from rates (net of remissions)

237,388

230,264

237,388

230,264

Non-rateable land

Under the Local Government (Rating) Act 2002 certain properties are non-rateable. This includes schools, churches, public gardens and certain land vested in the Crown. This land is non-rateable in respect of general rates but, where applicable, is rateable in respect of sewerage and water. Non-rateable land does not constitute a remission under the Council’s Rates Remission and Postponement Policies.

The New Zealand Transport Agency (NZTA), which reimburses part of the Council’s costs for maintaining the local roading infrastructure. The capital reimbursements from NZTA of $10.641m (2012: $12.377m) and operating reimbursements of $4.471m (2012: $4.527m) are for costs already incurred and there are no unfulfilled conditions or other contingencies relating to the reimbursements.

​The Crown, for the upgrade of the Council's social housing stock. The capital grant recognised in the current year of $28.088m (2012: $48.050m) is part of a 10 year work programme that commenced in 2008 and the revenue is recognised in accordance with that agreed work programme. There are no unfulfilled conditions or other contingencies relating to this grant.

For the Group, the additional principal subsidy was $3.814m (2012: $5.632m) from Greater Wellington Regional Council to Wellington Cable Car Limited for the maintenance of the overhead wire trolley system.

Rendering of services includes revenue from all Council services and is broken down as follows:

Restricted funds are received for specific purposes and are generally held for future use within special reserves or bequest and trust funds. For further information refer to Note 28: Restricted funds.

Vested assets are principally infrastructural assets such as roading, drainage, waste and water assets that have been constructed by developers. As part of the consents process, ownership of these assets is transferred to the Council, and on completion they become part of the city’s network.

The values of principal vested assets received were: roading ($6.322m) and drainage, waste and water ($3.640m).

Movements arising from the remeasurement of the Group's fair value hedges are offset by a fair value adjustment to borrowings so there is no impact on the net surplus for the year.

Movements on derivatives at fair value through surplus or deficit represents the fair value movements on interest rate swaps that do not meet the criteria for hedge accounting. Movements in the Group's other derivatives that meet the criteria for hedge accounting are taken to the cash flow hedge reserve and have no impact on the net surplus for the year.

Re-discounting of interest on provisions is the Council’s funding cost for non-current provisions (where the cash flows will not occur until a future date). For further information refer to Note 22: Employee benefit liabilities and provisions, and Note 23: Provision for other liabilities.

Depreciation (amortisation) is an expense charged each year to reflect the estimated cost of using our assets over their lives. Amortisation relates to intangible assets such as software (as distinct from physical assets, which are covered by the term depreciation).

Bank balances that are interest bearing earn interest based on current floating bank deposit rates.

Short term deposits are made with a registered bank for varying periods of up to three months depending on the immediate cash requirements and short term borrowings of the Group, and earn interest at the applicable short term deposit rates.

The Council holds short term deposits as part of its overall liquidity risk management programme. This enables the Council to maintain its regular commercial paper programme and to pre-fund upcoming debt maturities. The combination of the commercial paper programme and holding short term deposits reduces the Council’s cost of funds.

Derivative financial instruments are used by the Group in the normal course of business to hedge exposure to cash flow and fair value interest rate risk. The amounts shown above represent the fair values of these derivative financial instruments. Although these are managed as a portfolio, the Group has no rights to offset assets and liabilities and must present these figures separately.

Cash flow hedges are used to fix interest rates on floating rate debt (floating rate notes or commercial paper) or bank borrowings. Fair value hedges are used to convert interest rates on some fixed rate debt (bonds) to floating rates.

For further information on the Council’s interest rate swaps please refer to Note 31: Financial instruments.

Current trade receivables, rates receivables and sundry receivables are non-interest bearing and receipt is generally on 30-day terms, therefore the carrying value of trade and other receivables approximates their fair value.

The movement in the provision for impairment of trade receivables is analysed as follows:

Provision for impairment of total trade receivables

Council

Group

2013 $000

2012 $000

2013 $000

2012 ​$000

Opening balance

6,647

7,301

6,920

7,574

New provisions made

803

222

821

222

Release of unused provision

(367)

(295)

(367)

(295)

Amount of provision utilised

(219)

(581)

(219)

(581)

Provision for impairment of total trade receivables – closing balance

6,864

6,647

7,155

6,920

The ageing profile of trade and other receivables at the reporting date is as follows:

Council

Receivables 2013

Receivables ​2012

Gross $000

Impaired $000

Net $000

Gross $000

Impaired $000

Net $000

Trade and other receivables

Not past due

31,020

-

31,020

38,832

-

38,832

Past due 0 – 3 months

7,802

(113)

7,689

6,325

(125)

6,200

Past due 3 – 6 months

3,218

(111)

3,107

2,199

(114)

2,085

Past due more than 6 months

14,380

(6,640)

7,740

13,624

(6,408)

7,216

Total trade and other receivables

56,420

(6,864)

49,556

60,980

(6,647)

54,333

Group

Receivables 2013

Receivables ​2012

Gross $000

Impaired $000

Net $000

Gross $000

Impaired $000

Net $000

Trade and other receivables

Not past due

32,575

-

32,575

40,512

-

40,512

Past due 0 – 3 months

8,126

(113)

8,013

6,405

(125)

6,280

Past due 3 – 6 months

3,695

(111)

3,584

2,227

(114)

2,113

Past due more than 6 months

14,806

(6,931)

7,875

13,992

(6,681)

7,311

Total trade and other receivables

59,202

(7,155)

52,047

63,136

(6,920)

56,216

The receivables past due for more than six months primarily relates to fines. Due to their nature, the collection pattern for fines is longer than that for trade debtors.

Civic Assurance is the trading name of New Zealand Local Government Insurance Corporation Limited, which provides insurance products and other financial services principally to local authorities. The Council holds a 4.78% (2012: 4.78%) shareholding in this entity with no present intention to sell.

The New Zealand Local Government Funding Agency Limited (LGFA), which commenced in December 2011 is an alternative debt provider majority owned by and operated for local authorities. The Council holds an 8% shareholding of the paid-up capital and as a shareholder will benefit from a return on its investment and as a borrower from lower borrowing costs. The small reduction in value relates to the sell-down of shares to enable other councils to become shareholders. The LGFA has a AA+ (domestic long term) credit rating from Standard and Poors.

The loans to related parties are concessionary in nature, since the loans have been granted on interest-free terms.

The movements in the loans are as follows:

Council

Group

NOTE

2013 $000

2012 $000

2013 $000

2012 ​$000

Loans to related parties – associates

Wellington Regional Stadium Trust

(nominal value $15,394,893)

Opening balance

1,248

1,107

1,248

1,107

Amortisation of fair value adjustment

159

141

159

141

Closing balance at fair value

42

1,407

1,248

1,407

1,248

Loans to related parties – other organisations

Karori Wildlife Sanctuary Trust

(nominal value $10,346,689)

Opening balance

3,673

4,312

3,673

4,312

Amortisation of fair value adjustment

306

363

306

363

Additional fair value movement

-

(1,002)

-

(1,002)

Closing balance at fair value

3,979

3,673

3,979

3,673

Total loans to related parties

5,386

4,921

5,386

4,921

The fair value movement on loans reflects the timing of their expected repayments and the interest free nature of the loan. Over the remaining life of the loans their fair value will be amortised back up to their full nominal value.

The amortisation rate applicable to the Wellington Regional Stadium Trust is 12.710% and the rates applicable to the Karori Wildlife Sanctuary Trust range from 6.875% to 12.710%.

Further information on the related parties is disclosed in Note 42: Related party disclosures.

Consumables are materials or supplies which will be consumed in conjunction with the delivery of services. Consumables within the Council predominately comprise nursery plants, printing products and drainage and waste consumables. Consumables within the Group are mainly Wellington Cable Car Limited inventories of spare parts.

Inventories held for resale within the Council mainly comprise inventories at the Botanic Gardens and the Council’s swimming pools. The Group includes inventories at Wellington Museums Trust and Wellington Zoo.

Inventories held for distribution primarily relate to the holding of wheelie bins, green bins and recycling bags for distribution at no or nominal cost.

As part of the Emissions Trading Scheme the Council received carbon credits from Central Government in recognition of the carbon absorbed by a portion of the Council’s green belt. The Council received 149,979 credits for the 2013 calendar year (2012: 1,196). The Council has also purchased 80,000 credits in the market to cover the expected liabilities associated with landfill operations. At 30 June 2013 the total number of credits held is 234,686 (2012: 4,707).

At 30 June 2013 the liability relating to these credits is $0.080m (2012: nil).

More information on carbon credits can be found in the Statements of Service Performance under activity 2.2: Waste reduction and energy conservation.

Wellington City Council’s investment properties were valued as at 30 June 2013 by William Bunt (FNZIV, FPINZ), registered valuer and Director of Valuation Services for CBRE Limited. Wellington Waterfront Project’s investment properties were valued as at 30 June 2013 by Paul Butchers (BBS, FNZIV, FPINZ), Director of Bayleys Valuation Limited.

The Council’s total investment properties comprise ground leases of $154.902m (2012: $154.527m) and land and buildings of $51.049m (2012: $45.947m) held for investment purposes.

Ground leases are parcels of land owned by the Council in the central city or on the waterfront that are leased to other parties who own the buildings situated on the land. The leases are generally based on 21-year perpetually renewable terms. As these parcels of land are held for investment purposes the rentals are charged on a commercial market basis.

The basis of valuation varies depending on the nature of the lease. For sites that are subject to a terminating lease the approach is to assess the value of the rental income over the remaining term of the lease and add the residual value of the land at lease expiry. For sites subject to perpetually renewable leases values have been assessed utilising a discounted cash flow and arriving at a net present value of all future anticipated gross rental payments.

Revenues and expenses

Council

Group

2013 $000

2012 $000

2013 $000

2012 ​$000

Revenue from investment properties

12,668

12,493

12,668

12,493

Direct operating expenses of investment properties

– from investment properties that generated income

339

1,058

339

1,058

Contractual obligations for capital expenditure

35

6,947

35

6,947

Contractual obligations for operating expenditure

48

62

48

62

The direct operating expenses relating to investment properties form part of the direct expenses in Note 6: Expenditure on operating activities.

The Council’s operational land and buildings were valued as at 30 June 2012, and infrastructural land as at 30 June 2011 by William Bunt (FNZIV, FPINZI), registered valuer and Director of Valuation Services for CBRE Limited.

Library collections were valued as at 30 June 2011 by the Council’s library staff. The revaluation was carried out in accordance with guidelines outlined in Valuation Guidance for Cultural and Heritage Assets published by the Treasury Accounting Team, November 2002. An independent peer review was conducted by Michaela O’Donovan, Manager Service Design and Implementation, National Library of New Zealand.

Drainage, waste and water infrastructure and the roading network were valued as at 30 June 2011 by John Vessey (MIPENZ), Partner of Opus International Consultants Limited.

In the years which an asset class is not revalued, the Group assesses whether there has been any material change in the value of that asset class. The movement in asset values between 30 June 2012 and 30 June 2013 for the Roads, Water and Library asset classes were assessed using appropriate indices. The increase in asset value of 1.6% was not considered material by management and accordingly the assets were not revalued at 30 June 2013.

Further information on revaluation reserves and movements is contained in Note 25: Revaluation reserves.

Finance leases

The net carrying amount of plant and equipment assets held the Council under finance leases is $0.906m (2012: $1.242m).

Service concession arrangement

The Moa Point sewerage treatment plant is owned by the Council and operated by Veolia Water under a design, build and operate contract. Veolia Water also operates the Council-owned Western (Karori) and Carey’s Gully treatment plants. The plants and building assets are included in the drainage, waste and water asset class above.

Veolia Water is required to fund all renewals and repairs and return the plants to the Council in 2020 with a future life expectancy of at least 25 years.

As asset owner, the Council incurs all associated operating expenses, namely management fees, depreciation and finance costs. In accordance with section 100 of the Local Government Act 2002, the Council does not fully rates fund the plant’s depreciation expenditure.

Veolia’s monthly management fee is determined in accordance with annually adjusted tariffs. The contract terminates either on the expiry of the 25-year term (2020) or on the occurrence of a contract default event by either party. The contract’s right of renewal resides with the Council.

The Council maintains a prudent borrowings position in relation to our equity and annual income. Borrowings are primarily used to fund the purchase of new assets or upgrades to existing assets that are approved through the Annual Plan and Long-term Plan processes.

Net Borrowings

The following table offsets current (12 months or less) investment deposits held against the gross borrowings to obtain a net borrowings position.

Net borrowings

Council

Group

NOTE

2013 $000

2012 $000

2013 $000

2012 ​$000

Total gross borrowing and overdraft facilities utilised

388,330

361,618

388,340

361,631

Less

Cash and cash equivalents

10

(44,389)

(22,622)

(50,518)

(26,912)

Bank deposits – term (3–12 months)

13

-

-

(400)

(1,520)

Total net borrowings

343,941

338,996

337,422

333,199

Further discussion and illustration of the net borrowing and investment position is included in the Financial Overview on page 76.

The gross borrowings are comprised as follows:

Gross borrowings

Council

Group

2013 $000

2012 $000

2013 $000

2012 ​$000

Current

Bank facilities – short term – committed

-

2,000

-

2,000

Commercial paper

100,000

100,000

100,000

100,000

Debt securities – fixed rate bonds

25,000

9,000

25,000

9,000

Debt securities – floating rate notes

30,000

18,000

30,000

18,000

Finance leases

562

572

565

574

Total current

155,562

129,572

155,565

129,574

Non-current

Bank loans – term

3,035

1,242

3,035

1,242

Debt securities – fixed rate bonds

15,409

36,057

15,409

36,057

Debt securities – floating rate notes

214,000

194,000

214,000

194,000

Finance leases

324

747

331

758

Total non-current

232,768

232,046

232,775

232,057

Total borrowings

388,330

361,618

388,340

361,631

The Council's borrowing strategy is to minimise liquidity risk by avoiding concentration of debt maturity dates and to ensure there is long-term access to funds. Further information on the liquidity and market risks associated with borrowings is contained in Note 31: Financial instruments.

Bank facilities

A total of $145m (2012: $155m) of committed bank facilities is available to the Council. Some $55m is on a short term basis of less than one year and $90m for longer than one year. Interest is payable in arrears at wholesale market rates. A further $5m (2012: $5m) is available as an uncommitted facility with interest payable in arrears at wholesale market rates. Of these facilities, none were drawn at the end of the reporting period (2012: $2m).

Bank loans – term

Loans for the Council relate to the wastewater treatment plant joint venture with Porirua City Council, and comprise several individual loans totalling $3.035m (2012: $1.242m) with maturities from 2015 to 2036. The average effective interest rate applicable is 7.00%

Commercial paper

The Group has issued $100m of commercial paper with maturities of three months or less. The interest is paid on issue. The interest rates range from 2.69% to 2.87%.

Debt securities

The Group has issued $40m (2012: $44m) of fixed rate bonds with maturities from 31 March 2014 to 17 January 2020. Interest is payable six monthly in arrears. The interest rates range from 4.47% to 7.13%. The value of fixed rate debt securities includes a fair value hedge adjustment of $0.409m (2012: $1.057m) relating to the fair value interest rate swaps associated with these bonds.

The Group has issued $244m (2012: $212m) of floating rate notes with maturities from 30 September 2013 to 2 August 2019. Interest is payable quarterly in arrears. The interest rates vary from 2.76% to 4.15% and are subject to quarterly reset dates.

The following table shows the total borrowing facilities available to the Council and Group, and the use of these facilities at the end of the reporting period.

Gross borrowing and overdraft facilities

Council

Group

2013 $000

2012 $000

2013 $000

2012 ​$000

Gross borrowing and overdraft facilities available

Bank facilities – short term – committed

55,000

55,000

55,000

55,000

Bank facilities – long term – committed

90,000

100,000

90,000

100,000

Bank facilities – short term – uncommitted

5,000

5,000

5,000

5,000

Bank loans – term

3,035

1,242

3,035

1,242

Bank overdraft

1,500

1,500

1,550

1,550

Commercial paper

100,000

100,000

100,000

100,000

Debt securities – fixed rate bonds

40,409

45,057

40,409

45,057

Debt securities – floating rate notes

244,000

212,000

244,000

212,000

Finance leases

886

1,319

896

1,332

Total gross borrowing and overdraft facilities available

539,830

521,118

539,890

521,181

Gross borrowing and overdraft facilities utilised

Bank facilities – short term – committed

-

2,000

-

2,000

Bank loans – term

3,035

1,242

3,035

1,242

Commercial paper

100,000

100,000

100,000

100,000

Debt securities – fixed rate bonds

40,409

45,057

40,409

45,057

Debt securities – floating rate notes

244,000

212,000

244,000

212,000

Finance leases

886

1,319

896

1,332

Total gross borrowing and overdraft facilities utilised

388,330

361,618

388,340

361,631

Gross borrowing and overdraft facilities unutilised

Bank facilities – short term – committed

55,000

53,000

55,000

53,000

Bank facilities – long term – committed

90,000

100,000

90,000

100,000

Bank facilities – short term – uncommitted

5,000

5,000

5,000

5,000

Bank overdraft

1,500

1,500

1,550

1,550

Total gross borrowing and overdraft facilities unutilised

151,500

159,500

151,550

159,550

Bank overdraft

An overdraft facility of $1.500m (2012: $1.500m) is available to the Council. This facility was undrawn as at 30 June 2013 (2012: undrawn). The Group has additional overdraft facilities of $0.050m (2012: $0.050m).

Security

Council borrowings are secured by way of a Debenture Trust Deed over the Council’s rates revenue.

Internal borrowings

Council borrows on a consolidated level and as such does not use internal borrowing and therefore does not prepare internal borrowing statements.

Ringfenced funds

The Council holds $15.442m (2012: $8.738m) of cash that may only be used for a specified purpose; this amount has been offset against borrowings. As part of the agreement with the Crown for the Housing Upgrade Project an amount of $13.059m (2012: $7.700m), representing the accumulated cash surpluses from the Housing activity, has been ringfenced for future investment in the Council's social housing assets. There is also an amount of $2.383m (2012: $1.038m) related to accumulated cash surpluses from the Waste Reduction and Energy Conservation activity which, under the Waste Minimisation Act 2008, must be ring fenced for future investment in waste activities.

Finance lease liabilities

The Group has entered into finance leases for items of plant and equipment, predominantly computer equipment. The net carrying amount of the leased items is included within plant and equipment shown in Note 18: Property, plant and equipment.

The finance leases can be renewed at the Group’s option, with rentals set by reference to current market rates for items of equivalent age and condition. The Group does have the option to purchase the asset at the end of the lease term.

There are no restrictions placed on the Group by any of the finance leasing arrangements.

Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default.

Movements in the above short term and long term benefit provisions are analysed as follows:

Long service leave provision

Council

Group

2013 $000

2012 $000

2013 $000

2012 ​$000

Opening balance

-

-

101

118

Additional or increased provision made

-

-

-

-

Release of provision

-

-

-

(17)

Amount utilised

-

-

(23)

-

Long service leave – closing balance

-

-

78

101

Retirement gratuities provision

Council

Group

2013 $000

2012 $000

2013 $000

2012 ​$000

Opening balance

1,649

1,600

1,699

1,648

Movement in required provision

(23)

3

(23)

5

Release of unused provision

(170)

(14)

(182)

(14)

Rediscounting of interest

102

100

102

100

Amount utilised

(84)

(40)

(110)

(40)

Retirement gratuities – closing balance

1,474

1,649

1,486

1,699

Background

The Council’s retirement gratuities provision is a contractual entitlement for a reducing number of employees who, having qualified with 10 years service, will on retirement be entitled to a payment based on years of service and current salary. This entitlement has not been offered to Council employees since 1991. Based on the age of remaining participants the provision may not be extinguished until 2037, assuming retirement at age 65.

Estimation

The gross retirement gratuities provision (inflation adjusted at 2.30%) as at 30 June 2013, before discounting, is $2.093m (2012: $2.360m). The discount rate used is 6.50%.

Movements in the above termination benefits provision are analysed as follows:

Other contractual provisions

Council

Group

2013 $000

2012 $000

2013 $000

2012 ​$000

Opening balance

1,229

373

1,229

373

New provision

714

1,229

714

1,229

Release of unused provision

(463)

(11)

(463)

(11)

Amount utilised

(766)

(362)

(766)

(362)

Other contractual provisions – closing balance

714

1,229

714

1,229

Background

The above provision is to cover estimated redundancy costs as at 30 June 2013 resulting from the current restructuring of the Council.

Movements in the above provisions for other liabilities are analysed as follows:

ACC Partnership programme

Council

Group

2013 $000

2012 $000

2013 $000

2012 ​$000

Opening balance

10

133

10

133

Change in provision for risks incurred

96

(5)

96

(5)

Amounts utilised

(86)

(118)

(86)

(118)

Total liability for claims outstanding

20

10

20

10

Represented by:

Present value of future payments

17

9

17

9

Risk margin

3

1

3

1

Total liability for claims outstanding

20

10

20

10

Background

The Council is a member of the Accident Compensation Corporation (ACC) partnership programme. The Council acts as an agent on behalf of ACC managing claims for its employees and providing entitlements under the Accident Insurance Act 1998 in relation to work-related personal injuries and illnesses.

Estimation

This provision represents an estimate of the claims outstanding at the end of the reporting period together with an estimate of the claims incurred but not yet reported.

Landfill post-closure costs

Council

Group

2013 $000

2012 $000

2013 $000

2012 ​$000

Opening balance

17,217

16,830

17,217

16,830

Additional or increased provision made

29

1,011

29

1,011

Release of provision

(1,550)

(957)

(1,550)

(957)

Re-discounting of interest

1,069

1,129

1,069

1,129

Amount utilised

(416)

(796)

(416)

(796)

Landfill post-closure costs – closing balance

16,349

17,217

16,349

17,217

Background

The Council operates the Southern Landfill (Stage 3) and has a 21.5% joint venture interest in the Spicer Valley Landfill. It also manages a number of closed landfill sites around Wellington. The Council has responsibility for the closure of its landfills and to provide ongoing maintenance and monitoring of the landfills after they are closed.

As part of the closure of landfills, or landfill stages, the Council’s responsibilities include:

final cover application and vegetation;

incremental drainage control features; and

​completing facilities for post closure responsibilities.

Post closure responsibilities include:

treatment and monitoring of leachate;

ground water and surface monitoring;

gas monitoring and recovery;

implementation of remedial measures such as needed for cover and control systems; and

​ongoing site maintenance for drainage systems, final cover and vegetation.

The management of the landfill will influence the timing of recognition of some liabilities – for example, the Southern Landfill operates in stages. A liability relating to any future stages will only be created when the stage is commissioned and when refuse begins to accumulate in this stage.

Estimations

The long term nature of the liability means there are inherent uncertainties in estimating costs that will be incurred. The provision has been estimated using known improvements in technology and known changes to legal requirements. Future cashflows are discounted using the rate of 6.50%. The gross provision (inflation adjusted at 2.80%), before discounting, is $24.505m as at 30 June 2013 (2012: $28.630m). This represents the Council’s projection of the amount required to settle the obligation at the estimated time of the cash outflow.

Stage 3 of the Southern Landfill has an estimated remaining capacity of 658,051m3 (2012: 751,160m3) and is expected to close in 2018. These estimates have been made by the Council’s engineers based on expected future and historical volume information.

The Council’s provision includes a proportionate share of the Spicer Valley Landfill provision for post closure costs. The Spicer Valley Landfill has an estimated remaining capacity of 589,000m3 (2012: 620,000m3) and an estimated remaining life out to the end of 2022.

Storm costs

Council

Group

2013 $000

2012 $000

2013 $000

2012 ​$000

Opening balance

855

-

855

-

Background

Following a severe storm in June 2013 a provision has been made for an estimate of the associated clean-up costs not covered through the self insurance reserve fund.

Weathertight homes

Council

Group

2013 $000

2012 $000

2013 $000

2012 ​$000

Opening balance

56,057

50,864

56,057

50,864

Additional or increased provision made

14,965

9,903

14,965

9,903

Amount utilised

(4,043)

(4,710)

(4,043)

(4,710)

Weathertight homes – closing balance

66,979

56,057

66,979

56,057

Background

This provision represents the Council’s estimated liability relating to the settlement of claims arising in relation to the Weathertight Homes Resolution Services (WHRS) Act 2006 and civil proceedings for weathertightness.

A provision has been recognised for the potential net settlement of all known claims, including those claims that are being actively managed by the Council as well as claims lodged with WHRS but not yet being actively managed. The provision also includes an amount of $7.739m (2012: $8.933m) as a provision for future claims relating to weathertightness issues not yet identified or not yet reported.

Estimation

The Council has provided for the expected future costs of reported claims. The provision for active claims is based on the best estimate of the Council’s expected future costs to settle these claims and is reviewed on a case by case basis. The estimate for claims which have been notified and are not yet actively managed and unreported claims is based on actuarial assessments and other information on these claims. The nature of the liability means there are significant inherent uncertainties in estimating the likely costs that will be incurred in the future. This represents the Council’s best estimate of the amount required to settle the obligation at the estimated time of the cash outflow. Future cashflows are inflation adjusted and discounted using an applicable discount rate. The provision is net of any third-party contributions including insurance, where applicable.

The provision is based on best estimates and actuarial assessments and therefore actual costs incurred may vary significantly from those included in this provision, especially for future claims relating to weathertightness issues not yet identified or not yet reported.

The significant assumptions used in the calculation of the weathertight homes provision are as follows:

Amount claimed

Represents the expected amount claimed by the homeowner and is based on the actual amounts for claims already settled.

Settlement amount

Represents the expected amount of awarded settlement and is based on the actual amounts for claims already settled.

Amount expected to be paid by the Council

Represents the amount expected to be paid by the Council out of any awarded settlement amount and is based on the actual amounts for claims already settled. This figure has been increasing over the last few years as it is becoming more common for the other parties involved in a claim to be either in liquidation or bankrupt, or have limited funds and be unable to contribute to settlement.

Timing of claim payments

Represents the expected timing of claim payments based on the expected length of time it takes to settle claims. This assumption is based on experience and the actual timings for claims already settled.

Participation in Financial Assistance Package scheme

The provision for 2013 includes certain actuarial assumptions around the Government’s Financial Assistance Package (FAP). This assumption is based on actual and expected participation rates in the scheme.

Percentage of homeowners who will make a successful claim

Historical data collected on the number of claims lodged has enabled assumptions to be made on the percentage of homes built in the last 10 years which may experience weathertightness problems and therefore the percentage of homeowner who may make a successful claim.

The table below illustrates the potential impact on surplus or deficit of changes in some of the assumptions listed above.

Council and Group

2013$000

10%

-10%

Assumption

Effect on Surplus or Deficit

Amount claimed

5,438

(5,439)

Settlement level award

5,438

(5,439)

Council contibution to settlement

5,438

(5,439)

Timing of claim payments

285

(213)

Participation in FAP scheme

(2,949)

2,949

Percentage of homeowners who will make a successful claim

774

(774)

Council and Group

2013 $000

2%

-2%

Assumption

Effect on Surplus or Deficit

Discount rate

(1,894)

2,444

Funding of weathertight homes settlements

Weathertight homes settlements are funded initially through borrowings. To repay those borrowings, the Council has agreed to incrementally increase rates by 0.75% per annum until such time as the weathertight homes liability has been settled and the associated borrowings and funding costs are repaid. To ensure that the funding of weathertight homes is fully transparent the associated settlement costs, borrowings and rates funding is reported annually.

The revaluation reserves are used to record accumulated increases and decreases in the fair value of land, buildings, the library collection, and drainage, waste, water and roading assets.

The Council did not have any assets revalued during the period ending 30 June 2013 as part of its normal revaluation cycle, except for investment properties as explained in Note 17: Investment properties.

The hedging reserve shows accumulated fair value changes for interest rate swaps which satisfy the criteria for hedge accounting and have operated as effective hedges during the period. The Group includes the equity accounted net movement in the hedging reserve of our associate, Wellington International Airport Limited.

This reserve reflects the accumulated fair value movement in the Council’s investment in Civic Assurance, for which there is no intention to sell. See Note 13: Other financial assets – for further information.

These funds are held by the Council for specific purposes. More detailed information on the Council’s restricted funds is disclosed in Note 29: Special reserves and funds and Note 30: Trusts and bequests.

This fund has been set up to be part of an integrated approach to fostering growth in the economy.

Reserve purchase and development fund

This fund is used to purchase and develop reserve areas within the city. The funds were utilised for the costs associated with the purchase of reserve land on Te Ahumairangi (Tinakori) Hill and the Kinnoull Station.

Early Settlers Memorial Park reserve

This reserve is used to upgrade and maintain the Bolton Street Cemetery and surrounding park and walkways.

Self-insurance reserve

This reserve came into effect in 2001 and allows the Council to meet the uninsured portion of insurance claims. Annual additions to the reserve of $0.750m (2012: $0.500m) are funded through rates as identified in the Annual Plan.

Subsidiaries’ restricted funds

The restricted funds of the subsidiaries relate to the Wellington Museums Trust and the Wellington Zoo Trust:

The Wellington Museums Trust has three reserves; a Capital Reserve, a Colonial Cottage Museum Collection reserve and a City and Sea Collection reserve. The two collection reserves are for the purpose of future museum acquisitions.

​The Wellington Zoo Trust has a number of trust and bequests made, which are held as restricted funds until utilised.

Level 2 – Valuation technique using observable inputs – financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable.

​Level 3 – Valuation techniques with significant non-observable inputs – financial instruments valued using models where one or more significant inputs are not observable.

Council and Group

2013

2012

Level 1$000

Level 2$000

Level 3$000

Level 1$000

Level 2$000

Level 3 ​$000

Financial assets

Financial assets at fair value through other comprehensive income

-

-

2,503

-

-

2,681

Derivative financial instruments

- fair value hedges

-

409

-

-

1,057

-

- cash flow hedges

-

3,280

-

-

-

-

Financial liabilities

Derivative financial instruments

- cash flow hedges

-

13,235

-

-

24,059

-

- non-hedged swaps

-

-

-

-

222

-

Reconciliation of fair value movements in Level 3

Council

Group

2013 $000

2012 $000

2013 $000

2012 ​$000

Financial assets at fair value through other comprehensive income

- Equity investments

Opening balance - 1 July

2,681

1,275

2,681

1,275

Purchases

-

2,000

-

2,000

Disposals

(117)

-

(117)

-

Gains or losses recognised in other comprehensive income

(61)

(594)

(61)

(594)

Closing balance - 30 June

2,503

2,681

2,503

2,681

Financial risk management

As part of its normal operations, the Group is exposed to a number of risks. The most significant are credit risk, liquidity risk and market risk, which includes interest rate risk. The Group’s exposure to these risks and the action that the Group has taken to minimise the impact of these risks is outlined below:

Credit risk

Credit risk is the risk that a third party will default on its obligations to the Group, thereby causing a financial loss. The Group is not exposed to any material concentrations of credit risk other than its exposure within the Wellington region. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the Statement of Financial Position and the face value of financial guarantees to related parties (refer Note 37: Contingencies). There is currently no liability recognised for these guarantees as the Group does not expect to be called upon for payment.

The Group’s maximum exposure to credit risk at the end of the reporting period is:

Council

Group

2013 $000

2012 $000

2013 $000

2012 ​$000

Financial instruments with credit risk

Cash and cash equivalents

44,284

22,574

50,403

26,853

Derivative financial instrument assets

3,689

1,057

3,689

1,057

Trade and other receivables

- Trade receivables

15,482

13,627

16,609

14,941

- Other receivables

34,074

40,706

35,438

41,275

Other financial assets

- Bank deposits – term

-

-

400

1,520

- LGFA borrower notes

480

240

480

240

- Loans to related parties – associates

1,407

1,248

1,407

1,248

- Loans to related parties – other organisations

3,979

3,673

3,979

3,673

Financial guarantees to related parties

700

800

700

800

Total financial instruments with credit risk

104,095

83,925

113,105

91,607

Receivables balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant.

The Council is exposed to credit risk as a guarantor of the LGFA’s borrowings. Further information about this exposure is explained in Note 37: Contingencies.

Credit quality of financial assets

The credit quality of financial assets that are neither past due or impaired can be assessed by reference to Standard and Poor’s credit ratings.

Counterparties with credit ratings

Council

Group

2013 $000

2012 $000

2013 $000

2012 ​$000

Cash – registered banks

AA-

7,284

2,574

10,105

5,266

Short term deposits – registered banks

AA-

36,000

20,000

38,970

21,587

A+

1,000

-

1,328

-

Term deposits – registered banks

AA-

-

-

400

1,520

Term deposits – borrower notes – LGFA

AA+

480

240

480

240

Derivative financial instrument assets

AA-

3,689

1,057

3,689

1,057

Liquidity risk

Liquidity risk refers to the situation where the Group may encounter difficulty in meeting obligations associated with financial liabilities. The Group maintains sufficient funds to cover all obligations as they fall due. Facilities are maintained in accordance with the Council’s Liability Management Policy to ensure the Group is able to access required funds.

Contractual maturity

The following maturity analysis sets out the contractual cash flows for all financial liabilities that are settled on a gross cash flow basis. Contractual cash flows for financial liabilities include the nominal amount and interest payable.

The following maturity analysis sets out the contractual cash flows for all financial liabilities that are settled on a net cash flow basis. Contractual cash flows for derivative financial liabilities are the future interest payable.

Council

Group

2013 $000

2012 $000

2013 $000

2012 ​$000

Contractual cash flows of derivative financial liabilities

0–12 months

6,612

6,894

6,612

6,894

1–2 years

4,310

5,946

4,310

5,946

2–5 years

3,998

11,304

3,998

11,304

More than 5 years

39

1,653

39

1,653

Total contractual cashflow of derivative financial liabilities

14,959

25,797

14,959

25,797

Represented by:

Future interest payable

14,959

25,797

14,959

25,797

Total contractual cash flows of derivative financial liabilities

14,959

25,797

14,959

25,797

In addition to cash to be received in 2013/14 the Council currently has $145m in unused committed bank facilities available to settle obligations as well as $77.7m of cash, cash equivalents and receivables and is expected to have sufficient cash to meet all contractual liabilities as they fall due.

The Council is exposed to liquidity risk as a guarantor of all of LGFA’s borrowings. This guarantee becomes callable in the event of the LGFA failing to pay its obligations when they fall due. Information about this exposure is explained in Note 37: Contingencies.

The Council mitigates exposure to liquidity risk by managing the maturity of its borrowings programme within the following maturity limits:

Period

Minimum

Maximum

Actual

0 – 3 years

20%

60%

60%

3 – 5 years

20%

60%

21%

More than 5 years

15%

60%

19%

Market risk

Market risk is the risk that the value of an investment will decrease or a liability will increase due to changes in market conditions. The Group uses interest rate swaps in the ordinary course of business to manage interest rate risks. A Treasury Committee, headed by senior management personnel, provides oversight for financial risk management and derivative activities and ensures any activities are in line with the Liability Management Policy which is formally approved by the Council as part of the Long-term Plan (LTP).

Cash flow and fair value interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of the Group’s financial instruments will decrease due to changes in market interest rates. The Group is exposed to interest rate risk from its interest-earning financial assets and interest-bearing financial liabilities. The Group is risk averse and seeks to minimise exposure arising from its borrowing activities primarily by entering into interest rate swap arrangements to fix interest rates on its borrowings.

The Group manages its cash flow interest rate risk by using interest rate swaps. These have the economic effect of converting borrowings from floating rates to fixed rates. The Council uses interest rate swaps to maintain a required ratio of borrowing between fixed and floating interest rates as specified in the liability management policy:

Minimum fixed rate

Maximum fixed rate

Actual % of fixed debt prior interest rate swaps

Actual % of fixed debt after interest rate swaps

50%

95%

12%

76%

The table below shows the effect of the interest rate swaps at reducing the Council’s exposure to interest rate risk:

These interest rate swaps have a nominal value which represents the value of the debt they are covering (included above). This amount is not recorded in the financial statements; instead the fair value of these interest rate swaps is recognised. This represents the difference between the current floating interest rate and the fixed swap interest rate. At 30 June 2013 the fair value of the interest rate swaps was -$9.546m (2012: -$23.224m). This liability will reduce to zero as the swaps reach the end of their lives, and therefore do not represent a liability that the Council will be required to pay cash to settle.

Given that the interest rate swaps have terms that match with the borrowings (short term bank facilities, commercial paper and debt securities), it is appropriate to include the effect of the interest rate swaps on the borrowings interest rate and present the net effective interest rates for the underlying borrowings:

Weighted effective interest rates

Council

Group

2013 %

2012 %

2013 %

2012 %

Investments

Cash and cash equivalents

3.18

3.45

3.17

3.24

Bank deposits – term

-

-

4.25

4.40

LGFA – borrower notes

3.35

3.37

3.35

3.37

Loans to related parties

-

-

-

-

Borrowings

Bank facilities – short term

-

3.70

-

3.70

Bank loans

7.00

7.00

7.00

7.00

Commercial paper

2.78

2.81

2.78

2.81

Debt securities

3.50

4.05

3.50

4.05

Derivative financial instruments – hedged

5.00

5.01

5.00

5.01

Derivative financial instruments – non-hedged

-

6.31

-

6.31

Finance leases

10.28

10.32

10.29

10.34

Loans to related parties, being the loans to the Wellington Regional Stadium Trust and to the Karori Wildlife Sanctuary Trust, are both on interest free terms.

Sensitivity analysis

While the Council has significantly reduced the impact of short-term fluctuations on the Group’s earnings through interest rate swap arrangements, there is still some exposure to changes in interest rates.

The tables below illustrate the potential surplus and deficit impact of a 1% change in interest rates based on the Council’s and the Group’s exposures at the end of the reporting period:

Council

2013$000

+1%

-1%

+1%

-1%

Interest rate risk

Note

Effect on Surplus or Deficit

Effect on Other Comprehensive Income

Financial assets

Cash and cash equivalents – Council

a

444

(444)

-

-

LGFA – Borrower notes

5

(5)

-

-

Derivatives – interest rate swaps – hedged

b

-

-

126

127

Financial liabilities

Bank term loans

(30)

30

-

-

Commercial paper

c

(180)

180

-

-

Debt securities

d

(1,040)

1,040

-

-

Derivatives – interest rate swaps – hedged

b

-

-

16,833

(18,046)

Total sensitivity to interest rate risk

(801)

801

16,959

(17,919)

a. Cash and cash equivalents

Council funds are in a number of different registered bank accounts with interest payable on the aggregation of all accounts. A movement in interest rates of plus or minus 1% has an effect on interest income of $0.444m.

b. Derivatives – interest rate swaps

Derivatives include interest rate swaps with a fair value totalling -$9.546m. A movement in interest rates of plus 1% has an effect on increasing the unrealised value of the hedged interest rate swaps by $16.959m. A movement in interest rates of minus 1% has an effect on reducing the unrealised value of the hedged interest rate swaps by $17.919m.

c. Commercial paper

Commercial paper is part of a programme and subject to floating rates and totals $100m. The full exposure to changes in interest rates has been reduced because the Council has $82m of the debt at fixed rates through interest rate swaps. A movement in interest rates of plus or minus 1% has an effect on the interest expense of $0.180m.

d. Debt securities

Debt securities at floating rates total $244m. The full exposure to changes in interest rates has been reduced because the Council has $195m of this debt at fixed rates through interest rate swaps. Debt securities at fixed rates total $40m of which $25m is subject to changes in interest rates as it has been swapped to floating through interest rate swaps. A movement in interest rates of plus or minus 1% has an effect on the interest expense of $1.040m.

Equity management

The Group’s equity includes accumulated funds and retained earnings, revaluation reserves, a hedging reserve, a fair value through other comprehensive income reserve and restricted funds which comprise special funds, reserve funds and trusts and bequests.

The Local Government Act 2002 (the Act) requires the Council to manage its revenues, expenses, assets, liabilities, investments, and general financial dealings prudently and in a manner that promotes the current and future interests of the community. Ratepayer funds are largely managed as a by-product of managing revenues, expenses, assets, liabilities, investments, and general financial dealings.

The objective of managing these items is to achieve intergenerational equity, which is a principle promoted in the Act and applied by the Council. Intergenerational equity requires today’s ratepayers to meet the costs of utilising the Council’s assets but does not expect them to meet the full cost of long-term assets that will benefit ratepayers in future generations. Additionally, the Council has asset management plans in place for major classes of assets, detailing renewal and programmed maintenance. These plans ensure ratepayers in future generations are not required to meet the costs of deferred renewals and maintenance.

The Act requires the Council to make adequate and effective provision in its Long-term Plan and in its Annual Plan (where applicable) to meet the expenditure needs identified in those plans. The Act sets out the factors that the Council is required to consider when determining the most appropriate sources of funding for each of its activities. The sources and levels of funding are set out in the funding and financial policies in the Council’s LTP.

This analysis by strategic area is a summary of the ‘what it cost’ information within the Statements of Service Performance. Refer to pages 14 to 74 for more detailed information including variance explanations in respect of the Council’s strategies and activities.

Operating Income and Expenditure

Council

Income

Expenditure

Net

Net

Actual2013 $000

Budget2013 $000

Actual2013 $000

Budget2013 $000

Actual2013 $000

Budget2013 $000

Variance2013 $000

Strategic area

Governance

475

384

14,993

15,287

(14,518)

(14,903)

385

Environment

21,732

14,897

140,030

140,022

(118,298)

(125,125)

6,827

Economic development

14,835

-

33,033

19,404

(18,198)

(19,404)

1,206

Cultural wellbeing

1,115

1,047

17,938

17,898

(16,823)

(16,851)

28

Social and recreation

63,707

70,642

96,694

97,468

(32,987)

(26,826)

(6,161)

Urban development

19,725

10,684

36,453

25,777

(16,728)

(15,093)

(1,635)

Transport

34,385

33,400

50,713

53,737

(16,328)

(20,337)

4,009

Total strategic areas

155,974

131,054

389,854

369,593

(233,880)

(238,539)

4,659

Council

290,441

285,552

28,374

9,587

262,067

275,965

(13,898)

Total strategic areas and Council

446,415

416,606

418,228

379,180

28,187

37,426

(9,239)

The variance in Governance is due to savings arising from personnel vacancies during the year.

The variance in Environment is due to the recognition of unbudgeted vested asset income ($6.3m) for water, stormwater and sewerage pipes and fittings. The variance was also impacted by a favourable movement in the closed landfill provision offset by the need to provide for unbudgeted clean-up costs relating to the June storm.

The variance in Economic Development is due to the receipt of unbudgeted sub-tenant revenue upon the transition of St James Trust assets to Council, as well as lower depreciation than budgeted as a result of the 2011/12 asset revaluation process.

The variance in Social and Recreation is due to less capital funding being recognised as costs on the Berkeley Dallard flats upgrade are occurring later than anticipated in the budget. In addition we have received less revenue than expected particularly from swimming pools.

The variance in Urban Development relates to the unbudgeted $3m contribution towards the National War Memorial Park as approved by Council on 26 September 2012 and the consolidation of Wellington Waterfront Project with an increase in depreciation and insurance costs.

The variance in Transport is due to the recognition of unbudgeted vested asset income ($3.6m) for roading land, roads, footpaths and curb and channel. Depreciation for roading assets was also lower than budgeted ($0.4m).

The variance in Council is due to a number of factors including a higher than budgeted Wellington International Airport Limited dividend income and commercial lease revenue received offset by reduced rates revenue and development contributions. There is also an increase in the provision for weathertight homes.

Other major operating income and expenditure budget variances are explained within Note 33: Major budget variations.

Council

Income

Expenditure

Net

Net

Actual2012 $000

Budget2012 $000

Actual2012 $000

Budget2012 $000

Actual2012 $000

Budget2012 $000

Variance2012 $000

Strategic area

Governance

459

398

15,211

15,998

(14,752)

(15,600)

848

Environment

23,136

13,091

136,433

133,295

(113,297)

(120,204)

6,907

Economic development

14,228

248

32,687

16,731

(18,459)

(16,483)

(1,976)

Cultural wellbeing

925

1,042

16,792

16,826

(15,867)

(15,784)

(83)

Social and recreation

81,223

78,030

97,933

97,367

(16,710)

(19,337)

2,627

Urban development

17,006

11,164

29,223

25,035

(12,217)

(13,871)

1,654

Transport

31,420

33,430

49,830

54,301

(18,410)

(20,871)

2,461

Total strategic areas

168,397

137,403

378,109

359,553

(209,712)

(222,150)

12,438

Council

296,935

281,427

25,037

8,129

271,898

273,298

(1,400)

Total strategic areas and Council

465,332

418,830

403,146

367,682

62,186

51,148

11,038

Due to a realignment of some activities within the above strategic areas the results for the 2012 year above have changed slightly from those previously published so that they are directly comparable with the 2013 results.

higher other financial assets due to the investments in and with the LGFA – $2.363m offset by a reduction in the fair value of the investment in Civic Insurance due to a reduction in its net asset balance – ($0.655m),

changes in the maturity profile of our debt, as well as changes in the expected timing of weathertight home claim payments, that have resulted in most of the change in total liabilities being within current liabilities,

changes in gross debt levels from budget due to underspends in the capital expenditure programme as well as a higher level of short-term deposits – $14.662m,

​a significant increase in our provisions – $33.844m, primarily relating to an increase in the expected total future settlements relating to weathertight homes.

Statement of Cash Flows

Significant variations from budget are as follows:

Net cash flows from operating activities decreased by $9.777m primarily due to higher payments to suppliers and employees – $14.096m and grants paid – $3.483m offset by increased revenue from activities and other income – $10.670m,

​Net cash flows from investing activities decreased by $35.533m primarily due to the decrease in the purchase of property, plant and equipment – $29.314m.

This analysis reports capital expenditure performance against the approved budget contained within the Annual Plan by strategic area. The note reflects Wellington City Council capital expenditure only.

The capex variance of $0.839m has been adjusted for additional external funding received over and above budget.

Budget to carry forward

Amounts committed for future expenditure at end of the reporting period from within these capital expenditure budget carry forwards have been included within Note 36: Commitments.

Significant acquisitions and replacements of assets

In accordance with the provisions of Schedule 10 of the Local Government Act 2002, information in respect of significant acquisitions and replacements of assets is reported within the Statements of Service Performance.

Council

Annual Plan Budget

Budget Brought Forward from

Total Capex Budget

Budget to Carry Forward to

Available Capex Budget

Actual Capex

Variance Net

2012$000

2011$000

2012$000

2013$000

2012$000

2012$000

2012$000

Strategic area

Governance

-

31

31

(31)

-

-

-

Environment*

30,610

4,208

34,818

(5,254)

29,564

30,716

(1,152)

Economic development

2,201

332

2,533

(1,736)

797

212

585

Cultural wellbeing

43

232

275

-

275

261

14

Social and recreation

58,967

9,287

68,254

(8,057)

60,197

66,063

(5,866)

Urban development

6,688

3,197

9,885

(2,979)

6,906

7,337

(431)

Transport

38,781

7,553

46,334

(8,473)

37,861

38,307

(446)

Total strategic areas

137,290

24,840

162,130

(26,530)

135,600

142,896

(7,296)

Council

16,230

3,839

20,069

(5,032)

15,037

11,324

3,713

Total capital expenditure

153,520

28,679

182,199

(31,562)

150,637

154,220

(3,583)

* The budget carry forward for 2011/12 includes a carry forward from 2008/09

The following analysis shows the actual capital expenditure against budget. Projects are classified according to the strategic area. Detailed commentaries on each strategic area, activity and the outcomes that they contribute towards are contained in each strategic section of the Statements of Service Performance.

Savings achieved on several sewer renewal projects, and a change in approach in addressing bypass flows has resulted in savings in costs relating to the earlier proposed UV treatment upgrade.

Savings identified on deferred maintenance costs.

The cost of the new hydrotherapy pool at the Wellington Regional Aquatic Centre and the new teaching pool at the Karori pool were slightly ahead of budget.

Savings on renewals and upgrade projects.

In October 2012 the Council approved an additional $2.9m of capital spend for the strengthening of Shed 6 wharf.

Savings relating to the Mayor’s office relocation.

Increased costs on the Westchester Drive due to time delays experienced and required variations. Additional costs are offset by higher than budgeted external capital revenue received for the project in 2011/12.

The capital commitments above often span more than one financial year and includes the capital expenditure carried forward from Note 34: Analysis of capital expenditure by strategic area, which forms only part of the total commitments shown.

Operating leases – Group as lessee

The Group leases certain items of plant, equipment, land and buildings under various non-cancellable operating lease agreements.

The lease terms are between two and 21 years and the majority of the lease agreements are generally renewable at the end of the lease period at market rates.

The amount of minimum payments for non-cancellable operating leases is recognised as an expense in Note 6: Expenditure on operating activities.

The future expenditure committed by these leases is analysed as follows:

Non-cancellable operating lease commitments as lessee

Council

Group

2013 $000

2012 $000

2013 $000

2012 ​$000

Plant and equipment

Not later than one year

22

194

154

345

Later than one year and not later than five years

8

17

172

219

Later than five years

-

-

-

-

Land and buildings

Not later than one year

981

1,909

1,263

2,328

Later than one year and not later than five years

2,135

3,763

2,392

4,218

Later than five years

1,398

1,760

1,398

1,760

Total non-cancellable operating lease commitments as lessee

4,544

7,643

5,379

8,870

Operating leases – Group as lessor

The Group has also entered into commercial property leases of its investment property portfolio and other land and buildings.

The land and buildings held for investment purposes are properties which are not held for operational purposes and are leased to external parties.

Ground leases are parcels of land owned by the Group in the central city or on the waterfront that are leased to other parties who own the buildings situated on the land. The leases are generally based on 21-year perpetually renewable terms. As these parcels of land are held for investment purposes the rentals are charged on a commercial market basis.

The land and buildings not held for investment purposes are either used to accommodate the Group’s operational activities or are held for purposes such as road widening, heritage, or are being monitored for compliance reasons. In some cases, parts of these assets are leased to external parties on a commercial basis. The terms of these commercial leases generally range from one to 15 years.

The committed revenues expected from these lease portfolios are analysed as follows:

Non-cancellable operating lease commitments as lessor

Council

Group

2013 $000

2012 $000

2013 $000

2012 ​$000

Investment properties

Not later than one year

9,344

9,755

9,344

9,755

Later than one year and not later than five years

36,280

36,430

36,280

36,430

Later than five years

89,994

97,720

89,994

97,720

Land and buildings

Not later than one year

2,158

4,848

1,070

3,787

Later than one year and not later than five years

4,246

9,326

1,045

5,115

Later than five years

4,150

11,238

4,150

11,146

Total non-cancellable operating lease commitments as lessor

146,172

169,317

141,883

163,953

Commitments to related parties

The Council and Group have no commitments to key management personnel beyond normal employment obligations.

The Council has commitments to its subsidiaries and associates only to the extent of the expenditure approved in the Long-term Plan for the period ending 30 June 2014. Other expenditure approved as part of the Long-term Plan for the period from 1 July 2014 to 30 June 2022 is subject to change and approval each year through the Annual Plan.

The financial guarantees to community groups above are analysed below:

Outstanding debt subject to Council guarantees

Council

Group

2013 $000

2012 $000

2013 $000

2012 ​$000

Karori Wildlife Sanctuary Trust

700

800

700

800

Total outstanding debt subject to Council guarantees

700

800

700

800

Karori Wildlife Sanctuary Trust (Zealandia)

The Council has provided a guarantee over a term loan facility to a maximum limit of $1.550m plus any outstanding interest and enforcement costs.

NZ Local Government Funding Agency Limited (LGFA)

The Council is one of 30 local authority shareholders and 8 local authority guarantors of the LGFA. In that regard the Council has uncalled capital of $1.866m. When aggregated with the uncalled capital of other shareholders, $20m is available in the event that an imminent default is identified. Also, together with the other shareholders and guarantors, Council is a guarantor of all of LGFA’s borrowings. At 30 June 2013, LGFA had borrowings totalling $2,422m (2012: $835m).

Financial reporting standards require the Council to recognise the guarantee liability at fair value. However, the Council has been unable to determine a sufficiently reliable fair value for the guarantee, and therefore has not recognised a liability. The Council considers the risk of LGFA defaulting on repayment of interest or capital to be very low on the basis that we are not aware of any local authority debt default events in New Zealand; and local government legislation would enable local authorities to levy a rate to recover sufficient funds to meet any debt obligations if further funds were required.

Other legal proceedings

Other legal proceedings are current claims against the Council and Group as a result of past events which are currently being contested. The amounts shown reflect potential liability for financial reporting purposes only and do not represent an admission that any claim is valid. The outcome of these remains uncertain at the end of the reporting period. The maximum exposure to Council is anticipated to be less than $0.172m.

Unquantified contingent liabilities

The Government’s Weathertight Homes Financial Assistance Package aims to help people get their non-weathertight homes fixed faster, and centres on the Government and local authorities each contributing 25% of agreed repair costs and affected homeowners funding the remaining 50% backed by a Government loan guarantee. The impact that this package will have on future claim numbers and the quantum of those claims remains unknown at this stage since the scheme is still in its early stage. A provision for known claims and future claims has been made (refer Note 23: Provisions for other liabilities), but there may be an uplift in the number of claims as a result of the Government package. The impact and cost of this potential uplift in claims is unknown at this stage and cannot be measured reliably and therefore the Council and Group have an unquantified contingent liability.

On 11 October 2012 the Supreme Court of New Zealand released a decision clarifying that councils owe a duty of care when approving plans and inspecting construction of a building which was not purely a residential building. The Court held that there was no principled basis for distinguishing between the liability of those who played a role in the construction of residential buildings as against the construction of non-residential buildings. This extends the scope of the potential liability for the Council to include non-residential buildings consented under the Building Act 1991.

Through the process of working with our actuaries, it has been identified that due to a lack of historical and current information relating to non-residential building claims, a reliable estimate of any potential liability cannot be quantified at this time.

There are various other claims that the Council and Group are currently contesting which have not been quantified due to the nature of the issues, the uncertainty of the outcome and/or the extent to which the Council and Group have a responsibility to the claimant. The possibility of any outflow in settlement in these cases is assessed as remote.

Contingent assets

The Council and Group have no contingent assets as at 30 June 2013 (2012: $Nil).

The Council has established several Council-Controlled Organisations (CCOs) and Council-Controlled Trading Organisations (CCTOs) to help it achieve its goals for Wellington. These organisations were set up to independently manage Council facilities, or deliver specific services and developments on behalf of Wellington residents. A report on these organisations is found on page 190. The Council has made appointments to other organisations, which make them Council Organisations (as defined in the Local Government Act 2002) but they are not Council-controlled or part of the Group.

Percentages above represent the Council’s interest and/or ownership (for accounting purposes) in each of the entities in the Group.

The legal name of the subsidiary is the Partnership Wellington Trust Inc.

The legal name of the associate is Capacity Infrastructure Services Limited.

The end of the reporting period for the joint ventures is 30 June. Included in the financial statements are the following items that represent the Council’s and Group’s interest in the assets and liabilities of the joint ventures.

Share of Net Assets

2013$000

2012$000

Assets

Current

Inventory

5

5

Trade and other receivables

693

-

Non-current

Property, plant and equipment

19,430

19,444

Share of total assets

20,128

19,449

Liabilities

Current

Trade and other payables

-

62

Non-current

Borrowings

3,035

1,242

Provisions for other liabilities

1,768

1,680

Share of total liabilities

4,803

2,984

Share of net assets

15,325

16,465

The Council’s and Group’s share of the joint ventures’ current year net surplus and revaluation movements included in the financial statements are shown below.

Share of Net Surplus and Revaluation Movements

2013$000

2012$000

Operating revenue

2,400

2,525

Operating expenditure

(3,540)

(2,772)

Share of net surplus or (deficit)

(1,140)

(247)

Share of current year revaluation movement

-

(82)

The Council’s and Group’s share of the joint ventures capital commitments is $Nil (2012: $Nil) and contingent liabilities is $Nil (2012: $Nil).

Creates economic and social benefit by marketing the city with the private sector as a visitor destination.

Wellington Waterfront Limited

100%

100%

Manages the Wellington Waterfront Project.

Wellington Cable Car Limited

100%

100%

Owns and manages the trolley bus overhead wiring system and the Cable Car.

Wellington Museums Trust

100%

100%

Administers the Cable Car Museum, Capital E, the City Gallery, the Colonial Cottage Museum, the Carter Observatory and the Museum of Wellington City and Sea

Positively Wellington Venues (Wellington Venues Limited)

100%

100%

Manages the Wellington Venues Project.

Wellington Zoo Trust

100%

100%

Manages and guides the future direction of the Wellington Zoo.

The reporting period end date for all subsidiaries is 30 June. Full copies of their financial statements can be obtained directly from their offices. Further information on the structure, objectives, the nature and scope of activities, and the performance measures and targets of the entities can be found in the Report on Council Controlled Organisations (page 190).

The cost of the Council’s investment in subsidiaries is reflected in the Council’s financial statements as follows:

Investment in subsidiaries

2013$000

2012$000

Wellington Cable Car Limited

3,809

3,809

Total investment in subsidiaries

3,809

3,809

The equity investment represents the cost of the investment to the Council and includes all capital contributions made by the Council to subsidiaries. The Council has only made equity investments in Wellington Cable Car Limited. Nominal settlement amounts ($100) made in respect of Trusts, for which Council is the settlor, have not been recognised due to their materiality.

Information on inter-company transactions is included in the Note 42: Related party disclosures.

Owns and manages Wellington International Airport facilities and services.

Wellington Regional Stadium Trust

50%

50%

Owns and manages Westpac Stadium.

Full copies of the associates’ separately prepared financial statements can be obtained directly from their offices.

Basin Reserve Trust

The Basin Reserve Trust was established on 24 February 2005 to manage, operate and maintain the Basin Reserve and has a reporting period end date of 30 June. The Trust was jointly created with Cricket Wellington Incorporated (CWI). Wellington City Council and CWI each appoint two of the four trustees. Wellington City Council has significant influence over the Trust through the appointment of trustees, and receives benefits from the complementary activities of the Trust. On this basis the Trust is recognised as an associate of the Council in accordance with NZ IAS 28: Investments in Associates. It is therefore appropriate to recognise the interest that Wellington City ratepayers have in the Trust within the Council’s financial statements. As each party has equal power to appoint Trustees, Wellington City Council’s ownership interest in the Trust has been accounted for at 50%.

Capacity

Capacity, the trading name for Capacity Infrastructure Services Limited was jointly created with Hutt City Council on 9 July 2003 and has a reporting period ending 30 June. Wellington City Council and Hutt City Council each own Class A and Class B shares in the company.

Wellington City Council

Hutt City Council

Shares on issue

Class A shares (voting rights)

150

150

300

Class B shares (financial entitlements)

188

112

300

The Class A shares represent voting rights and are split evenly between the two councils. The Class B shares confer the level of contributions and ownership benefits of each council. Wellington City Council holds 188 Class B shares, and Hutt City Council holds 112. The company is considered to be jointly controlled because of the equal sharing of voting rights conferred through the Class A shares and is therefore an associate of both Wellington City Council and Hutt City Council in accordance with NZ IAS 28: Investments in Associates. Each Council will equity account for their respective ownership interest as determined by the proportionate value of Class B shares held. Wellington City Council’s ownership interest in the company is 62.5%.

Wellington City Council, Hutt City Council and Upper Hutt City Council have agreed to move Capacity Infrastructure Services Ltd to an outcomes based business model, which is designed to allow for the better development of a coherent regional strategy on delivering future three-waters services. They have also agreed to Upper Hutt City Council joining as a shareholder of Capacity. Porirua City Council is currently considering a proposal to become a customer and shareholder of Capacity. If both Upper Hutt City Council and Porirua City Council join as shareholders, Wellington City Council’s percentage of voting shares will reduce to 25% and its percentage of income shares will reduce to 50% of the company.

The shareholding changes and shift to the outcomes based business model are anticipated to be effective from 1 October 2013.

Chaffers Marina

Chaffers Marina Holdings Limited and Chaffers Marina Limited have a reporting period end date of 30 June. The shares in Chaffers Marina Holdings Limited are held by Wellington Waterfront Limited in a fiduciary capacity. As at 30 June 2013 Council held an 11.45% interest in Chaffers Marina Holdings Limited (2012: 11.45%) which has been reflected in the Group financial statements on an equity accounting basis reflecting the special rights (as set out in Chaffers Marina Limited’s Constitution) which attach to the golden share that it holds in Chaffers Marina Limited.

Wellington International Airport Limited

Wellington International Airport Limited has a reporting period end date of 31 March. The ultimate majority owner, Infratil Limited, has determined a different end of reporting period to Council, which is legislatively required to use 30 June. The Council owns 34% of the company, with the remaining 66% owned by NZ Airports Limited (which is wholly owned by Infratil Limited).

Wellington Regional Stadium Trust

Wellington Regional Stadium Trust was jointly created with Greater Wellington Regional Council and has a reporting period end date of 30 June. Wellington City Council has significant influence over the Wellington Regional Stadium Trust through the appointment of Trustees and receives benefits from the complementary activities of the Trust. On this basis the Trust is an associate of the Council in accordance with NZ IAS 28: Investments in Associates. It is therefore appropriate to recognise the interest that Wellington City ratepayers have in the Trust within the Council’s financial statements. As each Council has equal power to appoint Trustees, Wellington City Council’s ownership interest in the Trust has been accounted for at 50%.

Summary of Financial Position and Performance of Associates

The Council’s share of the assets, liabilities, revenues and surpluses or deficits of the associates is as follows:

Associates

Assets

Liabilities

Revenues

Surplus/(Deficit)

2013$000

2013$000

2013$000

2013$000

Basin Reserve Trust

524

50

318

(100)

Capacity

1,343

1,073

4,763

45

Chaffers Marina Holdings Limited

690

143

97

(16)

Wellington International Airport Limited

276,346

130,935

36,104

11,349

Wellington Regional Stadium Trust

48,412

9,115

8,347

1,427

Associates

Assets

Liabilities

Revenues

Surplus/(Deficit)

2012$000

2012$000

2012$000

2012$000

Basin Reserve Trust

628

53

300

(69)

Capacity

1,149

925

4,873

53

Chaffers Marina Holdings Limited

688

125

99

(23)

Wellington International Airport Limited

270,192

131,388

33,819

7,289

Wellington Regional Stadium Trust

48,212

10,448

9,353

1,855

Investment in associates

The cost of the Council’s investment in associates is reflected in the Council financial statements as follows:

Investment in associates

Council

2013$000

2012$000

Capacity

376

376

Chaffers Marina Holdings Limited

1,368

1,368

Wellington International Airport Limited

17,775

17,775

Total investment in associates

19,519

19,519

The investment in associates in the Group financial statements represents the Council’s share of the net assets of the associate. This is reflected in the Group financial statements as follows:

The Council’s share of the results of the Basin Reserve Trust, Capacity, Chaffers Marina Holdings Limited, Wellington International Airport Limited and the Wellington Regional Stadium Trust is as follows:

In this section, the Council discloses the remuneration and related party transactions of key management personnel, which comprises the Directors (the Mayor and Councillors), the Chief Executive and all members of the Council’s Executive Leadership Team. All members of the Group are also considered to be related parties of Wellington City Council, including its joint ventures, subsidiaries and associates.

Key management personnel

Council

Group

NOTE

2013 $

2012 $

2013 $

2012 ​$

Council members (Directors)

Short-term employee benefits

43

1,362,501

1,358,825

1,529,492

1,523,919

Chief Executive and Executive Leadership team

Short-term employee benefits

2,324,002

2,627,432

2,324,002

2,627,432

Post employment benefits

22,148

17,791

22,148

17,791

Total remuneration paid to key management

3,708,651

4,004,048

3,875,642

4,169,142

For further disclosure of the remuneration payable to the Mayor, Councillors and the Chief Executive refer to Note 43: Remuneration and staffing.

Material related party transactions – key management personnel

During the year key management personnel, as part of normal local authority relationships, were involved in transactions of a minor and routine nature with the Council on normal commercial terms (such as payment of rates and purchases of rubbish bags).

Except for these transactions no key management personnel have entered into related party transactions with the Group.

The Mayor and Councillors disclose their personal interests in a register available on the Council Website.

There are no commitments from the Council to key management personnel.

Material related party transactions – other organisations

– NZ Local Government Funding Agency Limited (LGFA)

The LGFA was incorporated on 1 December 2011 and was established to facilitate the efficient, and cost effective, raising of debt funding for local government authorities. There are currently 30 regional, district and city councils throughout New Zealand that own 80% of the issued capital, with the Government holding the remaining 20%. The Council became an establishment shareholder in this Council Controlled Trading Organisation (CCTO) and currently has an investment of $1.883m representing 8% of paid-up capital.

– Karori Wildlife Sanctuary Trust (Zealandia)

The Council has influence in the governance, funding and operations of the Karori Wildlife Sanctuary Trust (trading as Zealandia) which is not part of the Group, to the extent that it is considered appropriate to disclose the nature of the transactions as being between related parties.

The Council appoints two of the five trustees including the Chair. Operational funding of $0.350m was made during the year to 30 June 2013. The Council has a concessionary loan totalling $10.347m on interest free terms to the Trust. Further information on the loan is included in Note 13: Other financial assets.

Intra group transactions and balances

During the year the Council has entered into several transactions with its joint venture partner Porirua City Council. The nature of these intra-group transactions and the outstanding balances at the year-end are as follows:

Intra group transactions and balances – Joint ventures

2013$000

2012$000

Expenditure incurred by the Council to fund the operation and management of:

Porirua – waste water treatment plant

1,792

1,537

During the year the Council has entered into several transactions with its subsidiaries. The nature of these intra-group transactions and the outstanding balances at the year-end are as follows:

Intra group transactions and balances – Subsidiaries

2013$000

2012$000

Dividend received from:

Wellington Cable Car Limited

94

10

Revenue for services provided by the Council to:

Positively Wellington Tourism

125

160

Positively Wellington Waterfront

2

2

Wellington Cable Car Limited

68

63

Wellington Museums Trust

1,970

2,377

Wellington Zoo Trust

608

524

2,773

3,126

Expenditure incurred by the Council to fund operations and management of:

Positively Wellington Tourism

6,390

5,940

Positively Wellington Waterfront

1,075

1,075

Wellington Museums Trust

8,010

8,010

Wellington Zoo Trust

2,799

2,799

18,274

17,824

Expenditure for services provided to the Council by:

Positively Wellington Tourism

168

128

Wellington Cable Car Limited

323

195

Wellington Museums Trust

313

230

Wellington Venues Limited

5,386

5,428

Wellington Zoo Trust

1,280

1,112

7,470

7,093

Current receivables owing to the Council from:

Positively Wellington Waterfront

-

1

Wellington Cable Car Limited

2

1

Wellington Museums Trust

30

598

Wellington Zoo Trust

639

489

671

1,089

Current payables owed by the Council to:

Positively Wellington Tourism

15

-

Wellington Cable Car Limited

-

193

Wellington Museums Trust

15

172

Wellington Venues Limited

492

362

Wellington Zoo Trust

458

617

980

1,344

Current receivables and payables

The receivables and payables balances are non-interest bearing and are to be settled with the relevant entities on normal trading terms and conditions.

During the year the Council has entered into several transactions with its associates. The nature of these intra-group transactions and the understanding balances at the year-end are as follows:

Intra group transactions and balances – Associates

2013$000

2012$000

Dividend received from:

Wellington International Airport Limited

10,828

22,426

Revenue for services provided by the Council to:

Basin Reserve Trust

71

79

Capacity

34

34

Wellington International Airport Limited

1

3

Wellington Regional Stadium Trust

276

228

382

344

Expenditure incurred by the Council to fund the operation and management of:

Basin Reserve Trust

355

180

Wellington International Airport Limited 1

1,000

-

1,355

180

Expenditure for services provided to the Council from:

Basin Reserve Trust

-

7

Capacity

11,370

8,190

Wellington International Airport Limited

108

35

Wellington Regional Stadium Trust

297

252

11,775

8,484

Current receivables owing to the Council from:

Basin Reserve Trust

2

14

Capacity

3

3

Wellington Regional Stadium Trust

8

8

13

25

Current payables owed by the Council to:

Capacity

605

605

Wellington International Airport Limited

35

-

Wellington Regional Stadium Trust

72

72

712

677

Limited–recourse funding loan and advance

Wellington Regional Stadium Trust – nominal value – $15,394,893

1,407

1,248

Current receivables and payables:

The receivables and payables balances are non-interest bearing and are to be settled with the relevant entities on normal trading terms and conditions.

Limited-recourse funding loan and advance

The $15m loan to the Wellington Regional Stadium Trust (WRST) is unsecured, with no specified maturity and at no interest. The loan is not repayable until all other debts are extinguished.

On maturity of the WRST membership underwrite, the unpaid interest was converted to a $0.395m advance repayable after all other advances made by the Council and Greater Wellington Regional Council.

This grant to Wellington International Airport Limited relates to the agreement to fund 50% (capped at $1m) of the resource consent costs arising from the airport runway extension.

Remuneration is any money, consideration or benefit received, receivable or otherwise made available, directly or indirectly, to the Mayor or a Councillor during the reporting period. The Mayor and Councillors are considered directors as they occupy the position of a member of the governing body of the Council reporting entity. The disclosures for the Group include the remuneration of the Mayor and the appropriate Councillors in their role as trustees or directors of entities within the Group.

The following people held office as, either or both, elected members of the Council’s governing body, and trustees or directors of entities comprising the Group during the reporting period. The total remuneration attributed to the Mayor and Councillors during the year from 1 July 2012 to 30 June 2013 was $1,529,492 (2012: $1,523,919) and is disaggregated and classified as follows:

Council Member

Monetary Remuneration

Non Monetary Remuneration

Total Council Remuneration 2013

Director/Trustee Fees

Total Remuneration 2013

Salary

$

Resource Consent Hearing ​Fees $

Allowances

​$

$

$

$

​​$

Ahipene-Mercer, Ray

80,300

-

360

3,000

83,660

15,000

98,660

Best, Ngaire

80,300

-

360

3,000

83,660

15,000

98,660

Cook, Stephanie

85,220

-

360

3,000

88,580

-

88,580

Coughlan, Jo

80,300

-

360

3,000

83,660

15,000

98,660

Eagle, Paul

80,300

-

360

3,000

83,660

15,000

98,660

Foster, Andy

90,325

2,200

360

3,000

95,885

15,000

110,885

Gill, Leonie

85,220

-

-

3,000

88,220

-

88,220

Lester, Justin

80,300

-

360

3,000

83,660

15,000

98,660

McKinnon, Ian

97,430

-

360

3,000

100,790

43,991

144,781

Marsh, Simon

65,926

-

360

3,000

69,286

15,000

84,286

Morrison, John

80,300

-

360

3,000

83,660

18,000

101,660

Pannett, Iona

80,300

2,200

360

3,000

85,860

-

85,860

Pepperell, Bryan

80,300

-

360

3,000

83,660

-

83,660

Ritchie, Helene

80,300

-

360

3,000

83,660

-

83,660

Wade-Brown, Celia

161,600

-

-

3,000

164,600

-

164,600

Totals

1,308,421

4,400

4,680

45,000

1,362,501

166,991

1,529,492

Total monetary remuneration

1,317,501

166,991

1,484,492

Total non- monetary remuneration

45,000

-

45,000

Salary

The Remuneration Authority is responsible for setting the remuneration levels for elected members (Clause 6, Schedule 7 of the Local Government Act 2002). The Council’s monetary remuneration (salary) detailed above was determined by the Remuneration Authority. As permitted under the Authority’s guidelines the Council has chosen for its elected members to receive an annual salary for the 2012/13 financial year rather than the alternative option of a combination of meeting fee payments and annual salary.

Resource consent hearings payments

The determination issued by the Remuneration Authority also provides for the payment of hearing fees for those Councillors who sit as members of the Hearings Committee for hearings of resource consent applications lodged under the Resource Management Act 1991. The fees for members, who act in this capacity, are paid at the rate of $100 per hour for the Chair and $80 per hour for other members.

Councillors are entitled to claim an allowance for mileage for which the rates are set by the Remuneration Authority. However, from December 2008, Councillors voluntarily decided to forgo receiving this allowance.

Councillors are able to choose either of the following two options:

the payment of a communication allowance of $30 per month; or

​the reimbursement of any Council related communication costs, over and above any communication costs they would normally incur, payable on receipt of the appropriate documentation required under the provisions of the Remuneration Authority’s determination.

Both the allowance and reimbursement options are non-taxable. Only the payments under the allowance option have been included as remuneration in the schedule above.

The level of all allowances payable to the Council’s elected members has been approved by the Remuneration Authority and is reviewed by the Authority on an annual basis.

Non-monetary

In addition, the Mayor and Councillors receive non-monetary remuneration in relation to car parking space provided. The Councillors have shared office and working space available for use, and access to phones and computers. Professional indemnity and trustee liability insurance is also provided to Councillors against any potential legal litigation which may occur while undertaking Council business.

Director/trustee fees

The above director/trustee remuneration was paid to the following Council members in their capacity as Council appointees to the following organisations:

Council Member

Position

Director / Trustee Fees

Organisation

Council Interest ​%

Subsidiaries$

Associates$

Ahipene-Mercer, Ray

Trustee

15,000

-

Wellington Museums Trust

100.0

Best, Ngaire

Director

15,000

-

Positively Wellington Venues

100.0

Coughlan, Jo

Trustee

15,000

-

Positively Wellington Tourism

100.0

Eagle, Paul

Director

15,000

-

Positively Wellington Venues

100.0

Foster, Andy

Director

-

15,000

Capacity

62.5

Lester, Justin

Director

15,000

-

Wellington Waterfront Limited

100.0

McKinnon, Ian

Director

-

43,991

Wellington International Airport Limited

34.0

Marsh, Simon

Trustee

15,000

-

Wellington Zoo Trust

100.0

Morrison, John

Trustee

-

18,000

Wellington Regional Stadium Trust

50.0

Total director and trustee fees

90,000

76,991

Community Boards

The Council has two community boards – the Tawa Community Board and the Makara/Ohariu Community Board. Remuneration paid to the elected members of these boards is as follows:

Community Board Member

Salary

Allowances

Total2013

$

$

$

TAWA COMMUNITY BOARD

Sparrow, Malcolm (Chair)

21,165

540

21,705

Hansen, Graeme (Deputy Chair)

8,465

-

8,465

Lucas, Margaret

8,465

-

8,465

Reading, Chris

8,465

-

8,465

Sutton, Alistair

8,465

-

8,465

Tredger, Robert

8,465

-

8,465

MAKARA-OHARIU COMMUNITY BOARD

Grace, Christine (Chair)

13,550

540

14,090

Bruce, Gavin (Deputy Chair)

5,295

-

5,295

Liddell, Judy

5,295

-

5,295

Rudd, Wayne

5,295

-

5,295

Scotts, Margie

5,295

-

5,295

Todd, Hamish

5,295

-

5,295

Totals

103,515

1,080

104,595

A technology allowance of $45 per month is available to the chair of both the Tawa and Makara/Ohariu Community Boards. This allowance can be taken as either an allowance or as an actual expense reimbursement. Both options are non-taxable but only payments under the allowance option are included in the above remuneration table.

Chief Executive’s remuneration

The Chief Executive of the Council was appointed in accordance with section 42 of the Local Government Act 2002.

The table below shows the total remuneration of the Chief Executive paid or payable for the year ended 30 June 2013.

Under the terms of his agreement, the Chief Executive of the Council chooses how he wishes to take his remuneration package (salary only or a combination of salary and benefits).

– contractual payment due at expiry of fixed term employment agreement that commenced on 2 March 2008

104,520

Total remuneration paid or payable

554,892

423,4572

Kevin Lavery (31 March – 30 June 2013)

Salary3

99,726

-

Total remuneration paid or payable

99,726

-

Garry Poole was on a fixed term individual employment agreement with total remuneration of $419,231.

The total paid in 2012 is higher than the Chief Executive’s total annual remuneration (refer footnote 1) because some of the payment relates to the 2011 year (as following the September 2012 remuneration review process, the adjustment to remuneration was backdated to 2 March 2012).

Kevin Lavery is on a fixed term individual employment agreement with total remuneration of $400,000.

Severances

In accordance with Schedule 10, section 19 of the Local Government Act 2002, the Council is required to disclose the number of employees who received severance payments during the year and the amount of each severance payment made.

Severance payments include any consideration (monetary and non-monetary) provided to any employee in respect of the employee’s agreement to the termination of their employment with the Council. Severance payments exclude any final payment of salary, holiday pay and superannuation contributions.

For the year ending 30 June 2013 the Council made severance payments to 12 employees (2012:12) totalling $240,830 (2012: $110,628).

The following table identifies the number of full-time employees as at the end of the reporting period and the full-time equivalent number of all other part-time, fixed term and casual employees. The table further identifies the breakdown of remuneration levels of those employees into various bands.

Council

2013

2012

The number of full-time employees as at 30 June

910

1020

The full-time equivalent number of all other non full-time employees

216

209

The number of employees receiving total annual remuneration of less than $60,000

1033

1126

The number of employees receiving total annual remuneration of more than $60,000 in bands of $20,000

$60,000–$79,999

251

278

$80,000–$99,999

123

137

$100,000–$119,999

75

73

$120,000–$139,999

36

39

$140,000–$159,999

15

12

$160,000–$179,999

9

7

$180,000–$219,999*

9

6

$220,000–$279,999*

7

8

$280,000–$419,999*

4

2

A full-time employee or full-time equivalent is based on a 40-hour week.

Total annual remuneration has been calculated to include any non-financial benefits and other payments in excess of normal remuneration such as the employer KiwiSaver contribution.

* If the number of employees for any band was five or less then it has been combined with the next highest band.

There are no events after the end of the reporting period that require adjustment to the financial statements or the notes to the financial statements.

There were two large earthquakes situated near Wellington on 21July and 16 August 2013 which caused damage to some commercial and residential buildings in the Wellington area. The Council has performed engineering assessments on Council-owned buildings affected by the earthquake and discovered no structural damage. Repair to cosmetic damage and clean-up costs are expected to be minimal and largely covered by the self-insurance reserve fund.

26The Council’s share of the joint venture with Porirua City Council relating to the Spicer Valley Landfill is included in this asset class.